As most clients know by now, the IRS has released proposed regulations interpreting the Secure Act changes to the required minimum distribution (RMD) rules effective beginning in 2020.
In a surprise move, the regulations require most designated beneficiaries to take annual RMDs within the new 10-year distribution period if the original account owner died on or after their required beginning date (the Secure Act is silent regarding whether annual distributions are required). Clients who inherited accounts from owners who died before their required beginning dates will not be required to take annual RMDs during the 10-year distribution period.
We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about the IRS’ interpretation of the 10-year deferral window.
Below is a summary of the debate that ensued between the two professors.
Bloink: One major purpose of the Secure Act changes was to ensure that IRAs and retirement accounts are used for their intended purpose: saving to ensure sufficient income in retirement. Wealthy clients are often able to use these vehicles as estate planning options, and under the old rules, could continue to defer tax liability for decades after they had died.
Byrnes: The IRS’ interpretation under the proposed regulations is much different than anyone expected. The letter of the law seems to indicate that noneligible designated beneficiaries would still be entitled to a 10-year stretch tax deferral even post-Secure Act. It doesn’t seem that the new interpretation is what Congress intended — or what the IRS indicated would be the case in their own publications prior to the release of these regs. The back-and-forth does nothing but create headaches for financial professionals and their clients.