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4 Industry Complaints About IRS' Inherited IRA Shocker

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What’s one of the biggest frustrations industry groups have with the IRS’ recently released proposed regulations on how to handle required minimum distributions under the Setting Every Community Up for Retirement Enhancement (Secure) Act of 2019?

The “10-year rule curveball,” Ed Slott of Ed Slott & Co. told ThinkAdvisor in a recent email.

As Slott explains, the Secure Act “changed the payout rules for most non-spouse beneficiaries of IRA owners who die after 2019. Those beneficiaries can no longer use the stretch IRA. Instead, they are subject to a 10-year payout rule, which requires the entire IRA to be paid out within 10 years of the owner’s death.”

The IRS “went beyond the simple 10-year rule and added RMDs for years 1-9 in cases where RMDs had already begun before death,” Slott told ThinkAdvisor. Industry groups are frustrated with this surprise twist, he says.

As Slott explained in a previous interview, the 10-year rule “is the payout period by which most non-spouse beneficiaries will have to withdraw the balance in their inherited retirement accounts — technically by the end of the 10th year after death.”

The 10-year rule, he continued, “has essentially replaced the stretch IRA for most non-spouse beneficiaries, resulting in more of the funds being taxed in a shorter window (the 10 years) vs . the old stretch IRA where beneficiaries could extend RMDs for decades, and the tax could be deferred over a longer period.”

The comment period on the proposed regs — which are effective now — ended on May 25. A public hearing is scheduled for June 15.

See the gallery above for 4 industry complaints about the IRS reg’s 10-year rule.