Can an Inherited IRA Beneficiary Skip RMDs This Year? An Ask the Hammer 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. 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 the complex and evolving nature of inherited IRA rules, emphasizing the need for professional advice in such situations.
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Individual Retirement Accounts (IRAs) are a popular way for individuals to save for retirement, allowing them to grow their savings tax-deferred until they are withdrawn in retirement. When the original IRA holder passes away, their IRA will typically pass on to a designated beneficiary, who then has to start taking Required Minimum Distributions (RMDs) from the inherited IRA.

RMDs are minimum amounts that individuals must withdraw each year from their retirement accounts after reaching a certain age, starting at age 72. These withdrawals are subject to income tax and failure to withdraw the RMD amount can result in a hefty penalty from the IRS.

But what if an inherited IRA beneficiary wants to skip RMDs this year? Can they do that?

The short answer is yes, but only under certain circumstances. In 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act waived RMDs for all types of retirement accounts, including inherited IRAs, for the year 2020. This was in response to the economic impact of the COVID-19 pandemic and was aimed at providing individuals with some relief during these challenging times.

However, for future years, beneficiaries of inherited IRAs cannot skip RMDs unless they meet the criteria for a Qualified Charitable Distribution (QCD). A QCD allows individuals who are 70 ½ or older to donate up to $100,000 from their IRA to a qualified charity each year, which counts towards their RMD for that year. This can be a tax-efficient way to satisfy one’s RMD while also supporting a charitable cause.

It is important for inherited IRA beneficiaries to be aware of the rules and regulations surrounding RMDs, as failing to take the required distributions can result in a 50% penalty on the amount that should have been withdrawn. If you have inherited an IRA and are unsure about your RMD obligations, it is a good idea to consult with a financial advisor or tax professional to ensure that you are meeting the IRS guidelines.

In conclusion, while beneficiaries of inherited IRAs were able to skip RMDs for the year 2020 due to the provisions of the CARES Act, they are generally required to take RMDs in future years. However, there are strategies, such as QCDs, that can help individuals meet their RMD obligations in a tax-efficient manner. It is crucial for inherited IRA beneficiaries to stay informed and seek professional advice to ensure compliance with IRS regulations.