In today’s video we will break down the IRS Proposal that changes Inherited IRA RMD rules in the Secure Act – AGAIN!

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If you have inherited an IRA, a 401(k), a 403(b), a 457 plan or another qualified plan since 2020, you must watch this for breaking rule changes from the IRS.

Let’s back up and explain how we got here:

The bill that created these rules is the SECURE Act. The SECURE Act {Setting Every Community Up for Retirement Enhancement) passed on December 20, 2019, when it was signed into law by President Trump. It went into effect January 1st of 2020. There are many items in here that changed the future of retirement.

The old rules for Inherited IRA’s (pre – SECURE Act):
Under the old law, if you were a non-spousal beneficiary, you were able to stretch the required minimum distributions (RMDs) from an inherited account over your lifetime. This was called a Stretch-IRA and was a great planning tool for advisers. But the IRS needed to create revenue, and so, the SECURE Act was passed.

The new rules for Inherited IRA’s under the SECURE Act: (January 2020)
When the SECURE Act went into effect non-spousal beneficiaries were required to withdraw the entire balance from an inherited IRA, 401(k), 403(b), and 457 plan account within a 10-year period after the owner’s death. There were no required minimum distributions within those 10 years, meaning if the account was liquidated by the tenth year, you were ok.

Proposed changes to the SECURE Act (February 23rd, 2022):
Link to changes:

Non-spousal beneficiaries MUST take annual required distributions in years 1-9 if:
you inherited an IRA, 401(k), 403(b), 457 plan, or another qualified plan after 2020,
AND the deceased was already taking their required minimum distributions (RMD’s) NOTE: IRS calls this the “Eligible Begin Date or EBD”

So, who is exempt from these RMD changes: (EDB’s or Eligible Designated Beneficiaries)
Surviving Spouses: If you are the spouse of the deceased, you can still make the qualified account your own, and do not have to make it an inherited account. This allows you to continue the plan as if it was yours all along.
Chronically ill or disabled:
No more than 10 years younger than the deceased:
Children, under the age of 21, of the deceased account owner
Any beneficiary of a deceased individual who had not been old enough to take their RMD’s yet.

What if I inherited an IRA in 2021 and didn’t take the RMD, as I thought I didn’t have to? Will I be penalized?
Since this is a proposed change, you may want to wait to see the final ruling before rushing to take out last years RMD. You may get an exemption.
With my clients, knowing that the account had to be liquidated in the 10 year period, I had recommended taking the RMDs by 10% each year to level off the tax burden….(read more)

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