July 26, 2024

New Rules for Inherited Retirement Accounts

On July 18, 2024, the IRS issued final regulations for the SECURE Act of 2019, clarifying distribution requirements for beneficiaries of IRAs and 401(k)s. These regulations apply to beneficiaries of retirement account owners who died after December 31, 2019. It’s crucial to assess the type of beneficiary before planning withdrawals to ensure compliance with the new rules.

Key Points You Need to Know

Beneficiaries NOT Affected

Certain beneficiaries are not subject to the 10-year rule, including:

  • A spouse of the decedent
  • Disabled individuals
  • Chronically ill individuals
  • Minor children of the decedent
  • Individuals less than 10 years younger than the decedent

For these groups, distributions can be stretched over their life expectancy, with minor children switching to the 10-Year Rule at age 21. Additionally, the 10-year rule does not apply to beneficiaries of a decedent who died before December 31, 2019. Beneficiaries of a decedent who was not required to take RMDs (Required Minimum Distributions) at the time of their death (under age 73) may continue their current plan. While the entire balance must still be withdrawn within ten years, there are no annual RMDs due in years 1-9.

Affected Beneficiaries

Non-spousal beneficiaries of a decedent who was required to take RMDs at the time of their death are affected by the new rules. These beneficiaries must:

  • Continue taking annual RMDs in years 1-9 (*NEW RULE*)
  • Deplete the remaining account balance in year 10

Missed Withdrawals (2020-2024)

Beneficiaries who missed RMDs from 2020 to 2024 due to regulatory uncertainty will not face penalties. However, starting in 2025, they must begin annual withdrawals based on life expectancy.

What Does This Mean for You?

If you’ve inherited an IRA recently, these rules might apply to you. But don’t panic! The IRS is giving everyone some breathing room. You won’t need to start these new RMDs until 2025, and you won’t be penalized for not taking them until then.

Our Advice

Every situation is unique, but here are some general tips:

  1. Take a deep breath. You have time to plan.
  2. Consider taking larger withdrawals earlier, especially given current tax rates.
  3. Most importantly, let’s talk! We’re here to help you navigate these changes and make the best decisions for your financial future.

We’re Here for You

At Align, we understand that these rules can seem complicated. That’s why we’re here – to simplify the complex and help you make informed decisions about your finances. Have questions? Concerns? Just want to chat about how this might affect you? We’re always here to listen and provide guidance tailored to your unique situation. Remember, you’re not alone in this journey. We’re your partners in financial well-being, and we’re committed to helping you make the most of your inherited assets.

Stay tuned for more updates, and as always, don’t hesitate to reach out. We’re just a phone call or email away.