The IRS is again delaying some of the RMD rules for inherited IRA beneficiaries.
There have been a few changes over the last few years so here’s a quick recap.
Dave Zoller, CFP®

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00:00 Intro
00:30 Quick Recap
00:46 Changes in the past few years
01:35 The Negative of no stretch rule
02:00 One nice thing they did
02:27 Recent Change and delay from this year
03:29 How inherited IRAs can impact your income plan

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IRS Changes IRA Rules For Some Beneficiaries – retirement planning

The Internal Revenue Service (IRS) has recently announced significant changes to individual retirement account (IRA) rules for certain beneficiaries. These changes, which are set to take effect starting from the 2020 tax year, aim to provide clarity and fairness in the inherited IRA landscape, helping individuals effectively plan for their retirement.

Under the previous rules, beneficiaries inheriting an IRA were allowed to take distributions over their lifetime, resulting in potential tax advantages and the ability to stretch out the benefits of the account. This allowed the funds to continue growing tax-free, providing an important source of income for many beneficiaries.

However, these favorable rules created a loophole that some beneficiaries exploited. Non-spouse beneficiaries who did not require the funds immediately often utilized complex strategies to extend the account’s life expectancy and minimize taxes, such as a “Stretch IRA.” This involved the creation of a new, inherited IRA for the beneficiary, which allowed the funds to be stretched and continued growing, sometimes across several generations.

The new IRS regulations, brought by the passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, attempt to close this loophole. Now, most non-spouse beneficiaries will be required to withdraw funds from the inherited IRA within ten years of the original owner’s death.

This change will have significant implications for those inheriting IRAs, particularly for beneficiaries who are in their peak earning years. They will now need to devise new strategies to manage the withdrawal of funds over this shorter period, taking into consideration the potential tax implications and their own retirement plans.

However, it is important to note that several categories of individuals are exempt from the ten-year rule. These include spouses, minor children, disabled individuals, chronically ill individuals, and individuals within ten years of age of the deceased account owner. Spouses still have the option to treat the IRA as their own and have more flexibility in managing the account. Furthermore, those who inherited an IRA before 2020 are not subject to these new rules and can continue utilizing the previous regulations.

Although these changes may represent a setback for some beneficiaries, they should not deter individuals from pursuing a sound retirement plan. Consulting with a financial advisor and reviewing the options available can help beneficiaries navigate the new rules and optimize their retirement savings. Utilizing tax-efficient strategies, such as Roth conversions and charitable giving, may also help mitigate any potential tax burdens resulting from the new regulations.

It is crucial for individuals to stay updated with IRS regulations and adapt their financial plans accordingly. While the changes to IRA rules may require beneficiaries to rethink their strategies, they also present an opportunity to reassess and optimize retirement plans. By proactively engaging in retirement planning and seeking professional guidance, individuals can ensure they make the most of their IRA assets and establish a secure financial future for themselves and their loved ones.