Yes, they have done it again. Last week the Internal Revenue Service (IRS) issued Notice 2024-35 which waives Required Minimum Distributions (RMDs) for specific retirement account beneficiaries in 2024.
If you are or will be at least age 73 by the end of 2024, you still must take your RMD this year. If you own a beneficiary retirement account and are stretching the account distribution over the IRS’ life expectancy for you, you still must take your RMD this year.
However, if you own a beneficiary retirement account and are subject to the new 10-year rule created by the SECURE Act in 2019, the IRS is waiving your annual RMD – again. It waived RMDs for these accounts in 2020, 2021, 2022, and 2023. Notice 2024-35 adds 2024 to this list. It was kind of them to tell us in April this year instead of waiting until July like last year.
Is the IRS feeling benevolent given its massive cash inflow last week? Highly unlikely given its reputation for enforcement of tax laws.
Instead, their persistent waiver of annual RMDs for these specific beneficiary retirement accounts can be traced back to confusion which they themselves created.
The new 10-year rule sounds pretty straightforward as written by Congress. It states that those beneficiaries that do not qualify for an exception must empty any inherited retirement accounts by December 31st of the tenth year following the original owner’s passing.
Most retirement plan experts interpreted this to mean that beneficiaries would have complete flexibility to take distributions from their inherited retirement accounts whenever they wish as long as the account had a $0 balance by the deadline.
However, the IRS had different ideas. Their proposed regulations which were issued in 2022 required these beneficiaries to take annual RMDs in addition to emptying the account within 10 years – the worst of both worlds.
The IRS received plenty of feedback opposing this confusing additional annual requirement to what appears to be a simple law. It is possible they are substantially revising their proposed regulations as they have issued no additional guidance since 2022 other than persistently waiving their proposed RMDs for these beneficiaries every single year.
Thankfully, Notice 2024-35 announces that the IRS intends to issue its final SECURE Act regulations regarding beneficiary retirement accounts in 2024 so that taxpayers have firm guidance for 2025.
Let’s hope that after years of writing and rewriting these new regulations, the IRS makes this process as simple as possible for taxpayers. Somehow, I have my doubts.
If you or someone you care about needs help navigating the unnecessarily complex world of beneficiary retirement accounts, we are here to help. The opportunity for making costly irreversible mistakes is high, and an experienced guide can help you create a plan to maximize your inheritance.
Quote of the week: Charlie Munger: “Simplicity has a way of improving by enabling us to better understand what we are doing.”
Graphic Credit: Stock photo ID:1295813930 Credit: fizkes
