IRS Finally Figures Out What is Going On
Way back in 2019, Congress passed the SECURE Act. One provision of this Bill changed the taxation of inherited IRAs on non-spousal beneficiaries. Previously, you could stretch distributions over your lifetime if you inherited an IRA. However, under the new SECURE Act, Congress changed distributions from over your lifetime to ten years. You wouldn’t think this change would cause such problems, but it did. Non-spouses who inherited an IRA didn’t know if they had to take distributions every year for ten years or could wait until year ten and take all the money at one time.
When do beneficiaries need to start taking distributions?
The new rules will take effect starting in 2025. Most beneficiaries must take annual RMD (required minimal distributions) throughout the ten years, with the account fully depleted by the end of the tenth year.
Exceptions to the rules
Taxes would be so complicated if there weren’t exceptions to the rules (and exceptions to the exceptions).
- If the original account holder passed away before reaching their RMD age, beneficiaries don’t need to take annual distributions. However, the account must be emptied by the end of year ten.
- The following eligible beneficiaries are exempt from the 10-year rule.
- Surviving spouse
- Minor children (under age 21)
- Disabled or chronically ill individuals
- Beneficiaries less than ten years younger than the deceased.
Penalty Relief
Since the IRS and Congress took five years to figure out their own rules, they were nice enough not to access penalties if you missed any distributions for 2021 through 2024.
If you are a beneficiary of an inherited IRA, you should work closely with your financial advisor to determine your RMD schedule.
If you would like to discuss your business or personal tax planning, tax preparation, and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601 today to make an appointment at our Exton, PA office to discuss your situation. You can also schedule a consultation at Click Here.
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About Bryan Haarlander, EA, CTRS:
Bryan Haarlander is an IRS-licensed Enrolled Agent and a Certified Tax Resolution Specialist who owns and operates a specialized tax services firm serving clients in the western suburbs of Philadelphia, PA. This includes the cities of Chester Springs, Coatesville, Collegeville, Devon, Downingtown, Exton, King of Prussia, Paoli, Philadelphia, Phoenixville, Pottstown, Radnor, Reading, Wayne, and West Chester. We also serve clients in Delaware, New Jersey, New York, and the United States.
Bryan is well-known for his IRS tax resolution expertise and his book How to Resolve Your IRS Tax Debt Problems.
