Understanding the intricacies of inherited IRAs is crucial, especially considering recent IRS updates affecting non-spouse beneficiaries. Under the SECURE Act of 2019, significant changes were introduced, impacting how beneficiaries must manage inherited IRA accounts.
What’s Changed?
The SECURE Act mandates that most non-spouse beneficiaries must withdraw all funds from an inherited IRA within 10 years. Initially, there was a belief that distributions could be postponed until the tenth year was reached. However, the IRS ruled last year that if the original account holder was already taking required minimum distributions (RMDs), beneficiaries are required to continue annual withdrawals for the initial nine years.
What Does This Mean for 2025?
The IRS issued Notice 2024-35, which is an important development for those who have missed RMDs between 2021 and 2024. Key points include:
- If you inherited an IRA from someone who started RMDs, missed withdrawals between 2021 and 2024 will not incur penalties.
- This rule is applicable to IRA owners who passed away in 2020 or later.
- The RMD requirement takes effect on January 1, 2025, and no further waivers will be available beyond 2024.
Exceptions to the Rule
The 10-year withdrawal requirement does not apply to several categories, including:
- Surviving spouses
- Minor children of the original account holder (under 21)
- Individuals with disabilities or chronic illness
- Non-designated beneficiaries such as charities or estates
- Accounts inherited prior to 2020
Given these complexities and the evolving nature of IRS rules, it’s advisable to review your own situation. For personalized advice, I’m available to discuss your specific circumstances and ensure you are adequately prepared. Feel free to reach out and schedule a consultation.