Can an Inherited IRA Beneficiary Skip RMDs in 2023? In this episode of Ask the Hammer, a listener inherited an IRA and qualifies to stretch it over their lifetime. They skipped RMDs for 2021 and 2022 but caught up later. Recent IRS guidance offers relief for some beneficiaries, but this listener likely still needs to take their 2023 RMD.
Could I possibly Postpone My 2023 RMD to 2024?
Jeffrey Levine from Buckingham Wealth Partners answers the following question for a reader:
- I inherited a traditional IRA in 2021 for my sibling who passed away in February of 2021 at the age of 76. I was 74 at the time that she passed making me, I believe, an eligible designated beneficiary. The gist of my question is whether the relief for RMDs for 2021, 2022 and 2023 is meant only for non-eligible designated beneficiaries or as an eligible designated beneficiaries, could I possibly postpone my 2023 RMD to 2024 or even skip it and just take an RMD for 2024 next year.
In other words, the reader inherited in 2021 after the Secure Act changed the rules for most people eliminating the stretch. However, the individual who inherited was only two years younger than the person who passed away. That technically makes the inheritor what’s known as an eligible designated beneficiary, which means they are eligible to continue to stretch just as under the old rules. Now, in this particular case the reader, despite being able to stretch, missed taking their first two years of distribution and later returned and took them. The question is, can they avoid 2023’s distribution this year because of recent guidance from the IRS?
Levine explains that under the proposed regulation, the reader had two choices. Which are they could either stretch or opt into the ten-year rule. But, the IRS still needs to finalize the regulations.
If the person has chosen, to go the stretch route to not use the tenure rule and instead take it out over their remaining life expectancy as a beneficiary. In cases similar to this one, there needs to be an RMD every year as a stretch distribution.
The ten-year rule only, which was to certain individuals who inherited who are subject to the ten-year rule need to take RMDs during that ten years as well. In other words, instead of just emptying out everything by the end of the ten years, they need to take a small amount at least in each of those ten years. But the IRS has said no at least up until and through this year. However, that only applies to individuals who are using or subject to the ten-year rule.
In this particular case, the fact that the reader is an eligible designated beneficiary and taking distributions via the stretch, they are not going to benefit from that relief any distribution should be taken here in, or should be taken for 2023.
This is one of the problems when so much legislation is passed in a short period. In 2020, two at the end of the year, Secure Act 2.0 was another major piece of tax legislation that had roughly a hundred related tax or retirement changes in it. And all of these things are written in such a way that there are always questions. We always need the IRS to fill in the gaps and the cracks and yet so much of it is still up for grabs.
Levine suggests that the reader should take the RMD for 2023. If they don’t, they won’t be subject to the 50% penalty because it no longer exists. One of those changes in legislation cut the 50% penalty down to twenty-five and if it’s timely fixed, it goes to 10%.
If you apply to the IRS for relief and there is no guidance you’ll likely get out of that penalty as well. But, this will make life much more complicated so, it is better if it can be avoided for both dollars, but also sanity much better to do so.
The guidance only applies to those using the 10-year distribution rule, not those stretching the IRA. To avoid penalties, they should take their 2023 RMD before year-end. However, future RMD rules remain unclear due to ongoing legislative changes and lack of finalized regulations. This case highlights inherited IRA rules’ complex and evolving nature, emphasizing the need for professional advice in such situations.
Watch the full video to get the answer to the question: Can an Inherited IRA Beneficiary Skip RMDs in 2023? Watch more episodes of Ask The Hammer at this link: https://www.finstream.tv/videos/ask-the-hammer/