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IRA Financial Blog

Finally! Final RMD Regulations – Episode 452

Adam Talks

On this episode of Adam Talks, tax attorney and IRA Financial’s founder, Adam Bergman, Esq., discusses the recently released regulations about required minimum distributions (RMDs) and the difference between eligible and non-eligible beneficiaries.

Finally! Final RMD Regulations

This episode of Adam Talks features Adam Bergman, tax attorney and founder of IRA Financial, discussing the recently finalized regulations on required minimum distributions (RMDs) for inherited IRAs and Roth IRAs. The new rules, which have taken nearly five years to finalize, distinguish between eligible and non-eligible beneficiaries and dictate how long individuals can keep inherited funds in an IRA based on their relationship to the deceased and the deceased’s age at death.

Bergman explains that individuals must start taking RMDs from pretax retirement accounts like IRAs and 401(k)s at age 73, but Roth IRAs do not have RMDs, allowing funds to grow tax free for longer. The SECURE Act introduced changes in 2019, creating categories of eligible and non-eligible beneficiaries, and implementing a 10-year rule for non-eligible beneficiaries. This rule requires non-eligible beneficiaries to withdraw inherited funds within 10 years, either pro-rata or by the end of the 10-year period.

Eligible designated beneficiaries, such as surviving spouses, minor children, and individuals within ten years of the deceased’s age, have more flexible options. If the deceased was under 73, these beneficiaries can choose between a 10-year withdrawal period or stretching distributions over their life expectancy. If the deceased was already taking RMDs (over 73), the beneficiary can stretch distributions over the longer of their own or the deceased’s life expectancy.

For non-eligible beneficiaries, if the deceased was under 73, they can wait until the end of the 10-year period to withdraw funds. However, if the deceased was over 73, they must follow a pro-rata withdrawal schedule over 10 years. The regulations aim to balance tax revenue needs with beneficiary flexibility but have resulted in a complex set of rules.

Roth IRAs follow similar rules but with the added advantage of no RMDs for the original account holder or the surviving spouse. Non-spouse beneficiaries, however, must deplete the Roth IRA within 10 years, though they have the freedom to choose when and how much to withdraw within that period, without incurring taxes on distributions.

Bergman criticizes the complexity and time taken to finalize these regulations, suggesting that a simpler 10-year rule for all beneficiaries would have been more efficient. He offers assistance to clients of IRA Financial for calculating and understanding RMDs, emphasizing the unnecessary complications introduced by the regulations. The podcast concludes with an encouragement to enjoy the summer while being informed about the new RMD rules.

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