Along with the spring showers, there’s been some uncertainty in the air about the required minimum distributions for inherited retirement benefits. Estate law practitioners explain the confusion and offer an update.
The Secure Act of 2020
Last year’s SECURE Act changed how benefits from inherited retirement plans, such as 401 ks and IRAs could be paid out. For example, the designated beneficiaries on these accounts could no longer stretch out distributions over their lifetimes. Instead, a “10 year rule” was put into effect. Now, as lawyers from Ruder Ware have shared on JD Supra:
After the passage of the SECURE Act it was widely understood that a beneficiary of an inherited retirement benefit could withdraw assets from the inherited retirement benefit during the 10-year term, but would not have to. The only requirement was that a beneficiary had to withdraw all of the assets within the inherited retirement benefit by the end of the 10th year.
Much to the dismay of the estate planning community, the Internal Revenue Service (IRS) recently released an updated version of IRS Publication 590-B, which discusses the distribution requirements for retirement benefits inherited by “designated beneficiaries.” According to the updated version of IRS Publication 590-B, a “designated beneficiary” is required to withdraw a minimum amount from the inherited retirement benefit during each year of the 10-year period. The amount of the “required minimum distribution” (or “RMD”) that must be withdrawn every year by the “designated beneficiary” is determined under the same rules in effect before passage of the SECURE Act. At the end of year 10, the “designated beneficiary” is still required to withdraw all remaining funds in the retirement plan.
We are still waiting for official regulations regarding the 10-year rule from the IRS. It is possible the IRS will change its position in the official regulations. It is also possible the IRS simply made a mistake in the most recent version of IRS Publication 590-B. In any case, there is a state of confusion right now with respect to retirement benefits inherited on or after January 1, 2020.
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