by Tyler Conroy, CFP®
Vice President, Wealth Planning
On April 16, the IRS issued Notice 2024-35, which announced required minimum distribution (RMD) withdrawals would be waived for certain beneficiaries of inherited retirement accounts (IRAs). This announcement is subject to the 10-year withdrawal rule under the SECURE Act, which stands for the “Setting Every Community Up for Retirement Enhancement” and was enacted in 2019.
The SECURE Act introduced changes to inherited IRA distribution rules by eliminating the stretch IRA for most beneficiaries and replacing it with a 10-year distribution rule. Under this rule, non-eligible designated beneficiaries (NEDBs) must deplete the inherited IRA within 10 years of the original account owner's death.
However, exceptions apply to eligible designated beneficiaries (EDBs) such as surviving spouses, minor children, disabled individuals, chronically ill individuals and individuals not more than 10 years younger than the IRA owner, who can still benefit from the stretch IRA and are not subject to the 10-year distribution rule.
In February 2022, the IRS proposed additional regulations for NEDBs who inherit IRAs from account owners who passed away after reaching their required beginning date for required minimum distributions. The IRS clarified that this group of beneficiaries must take annual RMDs during years one through nine of the 10-year period. These proposed regulations are pending court approval.
Due to the ongoing legal process and absence of a final court ruling, the IRS has again opted to waive RMDs for this group of beneficiaries for 2024, the fourth consecutive year.
It is important to note that Notice 2024-35 does not affect lifetime RMDs. Eligible designated beneficiaries are not eligible for this RMD relief since they are exempt from the 10-year rule and must take their 2024 RMDs. The relief also does not extend to beneficiaries who inherited IRAs before 2020 and are governed by pre-SECURE Act rules allowing any designated beneficiary to stretch distributions over their lifetime.
The IRS also specified in Notice 2024-35 that it anticipates finalizing the proposed SECURE Act regulations from February 2022, effective 2025.
To learn more about this rule, you can read the CNBC article here.
If you would like to discuss this further and how it may or may not apply to you, please contact your portfolio manager.