IRS Waives 2024 RMDs For Inherited IRA Beneficiaries (2024)

FAQs

IRS Waives 2024 RMDs For Inherited IRA Beneficiaries? ›

The waiver of RMDs for inherited IRAs in 2024 is more than just a tax relief. It's a chance to rethink your estate planning approach. California residents, in particular, should consider state-specific tax implications and the high cost of living when planning their estate.

However, in the recent Notice, the IRS specified that non-eligible beneficiaries do not need to make these mandatory withdrawals in 2024. This effectively suspends the excise tax for failing to take RMDs during this period for those beneficiaries subject to the 10-year rule.

This means some beneficiaries of inherited IRAs have had more time to adapt to distribution requirements. The IRS will waive penalties for RMDs missed in 2024 from IRAs inherited in 2023, where the deceased owner was already subject to RMDs.

However, for 2024 and later years, RMDs are no longer required from designated Roth accounts. You must still take RMDs from designated Roth accounts for 2023, including those with a required beginning date of April 1, 2024. You can withdraw more than the minimum required amount.

This continues under SECURE 2.0. For deaths in 2020 or later, only certain nonspouse individual beneficiaries (called "eligible designated beneficiaries") do not have to deplete the account within 10 years and may use their life expectancy to calculate the minimum amount that must be withdrawn each year.

That reprieve has now been extended through 2024. The penalty for failing to take required IRA payouts is assessed at 25% of the amount that should have been taken out. “It's very difficult at best to figure it out,” said Larry Steckmest, a retired lawyer in Novato, Calif.

The IRS previously extended the 2022 relief to 2023 Specified RMDs in Notice 2023-54. Now, in Notice 2024-35, the IRS again extended this relief to 2024 Specified RMDs. In this most recent guidance, the IRS also provided that the 2022 proposed RMD regulations, if finalized, will not apply earlier than 2025.

RMDs might affect taxes. Missing a withdrawal may result in penalties. The qualified charitable distributions limit increased in 2023. There are no RMDs for Roth 401(k)s in 2024.

The CARES Act waives required minimum distributions (RMDs) during 2020 for IRAs and retirement plans, including for beneficiaries with inherited IRAs and accounts inherited in a retirement plan. This waiver also includes RMDs if you turned age 70 ½ in 2019 and took your first RMD in 2020.

How does the Secure Act 2.0 change an inherited IRA? ›

What changed under SECURE 2.0? The SECURE Act eliminates the stretch IRA option and now requires most non-spouse beneficiaries to take RMDs ratably from accounts inherited from owners who died after 2019 within 10 years after the account owner's death.

Final regulations anticipated for 2025

The regulations will incorporate SECURE 1.0 changes to the RMD rules, including an increase in the RMD beginning age from 70-1/2 to 72 and the new 10-year rule. The regulation will also include some later changes made by the SECURE 2.0 Act of 2022 (Div. T of Pub.

If you are taking RMDs and collecting Social Security benefits, the RMDs will not impact the amount of your benefits—but it could impact how much of your Social Security benefit is taxable. The amount your Social Security is taxed depends on your annual income. RMDs may increase your taxable income.

The IRS has just waived some Inherited IRA RMDs again for 2024. Even if you are not technically required to make a withdrawal, it may still make tax sense to make a distribution in 2024.

Take a lump-sum distribution

As the beneficiary, you may distribute the account assets in a lump sum without facing a 10% early withdrawal penalty. (If you inherit a Roth IRA, the account must have been open for at least five years to avoid paying a penalty.)

The 10-Year Rule for Inherited IRAs

Eligible designated beneficiaries are exempt from the 10-year rule. This applies to surviving spouses or minor children (until age 21), the chronically ill or disabled, and people who are not more than 10 years younger than the decedent. They can still do stretch IRAs.

Generally, pursuant to § 401(a)(9)(H)(i), if an employee in a defined contribution plan has a designated beneficiary, the 5-year period under the 5-year rule is lengthened to 10 years (10-year rule) and the 10-year rule applies regardless of whether the employee dies before the required beginning date.

For every dollar not withdrawn, the Internal Revenue Service (IRS) will charge a 25% penalty, known as an excise tax. However, if the failure is "timely corrected within two years," according to the IRS, the penalty is reduced from 25% to 10%.