An IRS spokesperson has announced that the IRS plans to revise Publication 590-B. The revision will show that beneficiaries have up to 10 years to withdraw the money with no requirements to pay RMDs in the years leading to the 10th year.
Since its passage in 2019, the industry has worked under the assumption that the SECURE Act 10-Year rule provided designated beneficiaries with one Required Minimum Distribution (RMD), that being the one at the end of the tenth year after the IRA owner’s death.(1) The SECURE Act rules seemed to indicate that no RMDs would be required in years one through nine.
Wait! IRS Now Says SECURE Act 10-Year Rule May Require Annual RMDs
However, on March 25, 2021, the IRS distributed Publication 590-B, which seemed to contradict this widely held RMD belief for Designated Beneficiaries.(2)
Ed Slott picked up on this. In an article discussing this bizarre change, he mentions:
“Pages 11 and 12 provide an explanation and an example showing that beneficiaries would be subject to RMDs each year (as under the pre-SECURE Act rules) for years one through nine, and then the balance must be withdrawn in year 10. No one saw that coming! This doesn’t go along with the SECURE Act rules and committee reports, which seemed to indicate that the new 10-year rule would work like the old pre-SECURE Act five-year rule, with no annual distributions required.” (3)
I went in and read IRS Publication 590-B, and precisely as Ed Slott said, the bottom of page 11 through the top of page 12 showed how beneficiaries would calculate RMDs each year until the final RMD at the end of the 10th year.
Since the IRS publication was released, these annual RMDs under the 10-year rule are likely the most talked-about issue in the IRA community. Debates are raging, asking questions, and wondering if this might be a mistake by the IRS.
Ed Slott summarized it best:
“That said, I would urge all beneficiaries subject to the 10-year rule to hold off on taking any RMDs this year until we are sure of the rules. IRS has not yet released official regulations. Plus there will be a comment period, and this could all change. So wait until we have this 10-year rule issue resolved with certainty. In other words — stay tuned. We have not heard the last on this.” (3)
Critical advice by Mr. Slott. We will keep you informed as we receive further clarification.
(1) A Designated Beneficiary is defined as any IRA beneficiary who is not an Eligible Designated Beneficiary which comprises of a spouse, a chronically ill beneficiary, a disabled beneficiary, certain minor children, and beneficiaries ten years or younger than the IRA owner.
(2) Department of the Treasury Internal Revenue Service. “Publication 590-B.” IRS.gov, www.irs.gov/pub/irs-pdf/p590b.pdf.
(3) "IRS: SECURE Act’s 10-year RMD rule is not what you thought." InvestmentNews. April 12, 2021. https://www.investmentnews.com/irs-secure-acts-10-year-rmd-rule-is-not-what-you-thought-205141.
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