The IRS’ new proposed RMD regulations under the Setting Every Community Up for Retirement Enhancement (Secure) Act bring a new twist for successor beneficiaries — those who inherit a retirement account from a beneficiary of the original owner.
if the original account beneficiary was subject to the Secure Act’s requirement to empty the account within 10 years, the successor must continue to take distributions within the same 10-year window. If the original beneficiary was an eligible designated beneficiary using the life expectancy method for distributions, the successor beneficiary obtains a new 10-year distribution window.
An original beneficiary using the 10-year distribution window must take annual RMDs if the original account owner died after their required beginning date. If the original account owner died before the required beginning date, no annual RMDs are required, and the beneficiary can elect to withdraw the entire account balance as a lump sum in year 10.
That same rule dictates whether the successor beneficiary will be required to take annual RMDs after the successor inherits the account from the original beneficiary. In other words, the successor beneficiary’s distribution obligations do not depend on the original beneficiary’s RMD obligations, but instead depend on the original account owner’s RMD obligations.
We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the new proposed RMD rules for successor beneficiaries.
Below is a summary of the debate that ensued between the two professors.
Byrnes: The challenges and controversy surrounding the new RMD rule for successor beneficiaries of retirement accounts is a bit overblown. Yes, the new rule may be inconvenient in some situations, but the primary challenge is about record-keeping, not whether the rule itself is fair.