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July 25, 2023 at 01:36 PM
Under the original Setting Every Community Up for Retirement Enhancement (Secure) Act, non-eligible designated beneficiaries who inherited an IRA in 2020 or later are subject to a 10-year payout period.
Most people anticipated that the beneficiary would be entitled to take distributions at any time during that period (without the need for annual required minimum distributions), as long as the account was empty after 10 years.
In a surprise interpretation, the IRS’ proposed regulations stated that those beneficiaries would be subject to annual RMDs during the 10-year period if the account owner died after their required beginning date.
Because those proposed regulations were not released until 2022, the IRS offered relief and waived 2021 and 2022 RMDs. In Notice 2023-54, the IRS has now waived 2023 RMDs for non-eligible designated beneficiaries of individual retirement account owners who died after their required beginning date (including accounts inherited in 2022).
We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions.
Was the IRS correct in offering relief for 2023 RMDs? Below is a summary of the debate that ensued between the two professors.
Their Votes:
Bloink
Byrnes
Their Reasons:
Byrnes: The proposed regulations the IRS released in 2022 shocked most tax experts, who were advising clients that they would not have to take RMDs during years 1-9 based on existing precedent on the prior five-year rule. It makes perfect sense that the IRS would continue to offer relief until additional guidance and transition support can be provided, so that taxpayers can effectively plan to structure their RMDs for the remaining term.
