IRS ISSUES UPDATED RMD RULES:
Under the SECURE Act, the distribution rules for non-spousal beneficiaries from a qualified plan or IRA were changed (except for certain designated beneficiaries) to allow for a 10-year period to distribute the funds. There was a general interpretation of the SECURE Act rules that there was no annual distribution required and the beneficiary could wait until the 10th year to take the entire distribution.
The IRS then clarified that Section (401)(9) provides rules for RMDs and that the intention of the SECURE Act required annual minimum distributions to the beneficiaries starting from the date of enactment in 2020.
The IRS’s proposed regulations took many taxpayers and tax professionals by surprise because they assumed that the pre-SECURE Act rules that governed the five-year distribution period, extended to 10 years by the SECURE Act, would apply. This would have allowed taxpayers with inherited IRAs to wait until year 10 to take any distributions from those accounts.
The proposed regulations, as originally released, applied to accounts inherited after December 31, 2019, which meant that many beneficiaries who inherited IRAs in 2020 were required to take distributions for 2021, but failed to do so. This would have resulted in many taxpayers being subject to the IRC §4974 50% excise tax for failing to take a required distribution. As a result of the delayed effective date, taxpayers are not subject to this excise tax for failing to take the annual RMDs in 2021 or 2022 and may apply for a refund if the excise tax was already paid.
The IRS has now issued Notice 2022-53 that the proposed regulations requiring annual RMDs to designated beneficiaries of an inherited IRA over a 10-year period, which appear likely to be adopted, will not apply until the 2023 distribution year at the earliest. The proposed language states that: "To the extent a taxpayer did not take a specified RMD (as defined in Section IV.C of this notice), the IRS will not assert that an excise tax is due under section 4974. If a taxpayer has already paid an excise tax for a missed RMD in 2021 that constitutes a specified RMD, that taxpayer may request a refund of that excise tax."
