by Dave Kutcher
The Secure 2.0 Act of 2022 has caused some confusion for taxpayers in terms of their Required Minimum Distribution (RMD) rules.
The new RMD age is 73. But hold on… if you were born in 1950 you are subject to a 2023 RMD. When the Secure 2.0 increased the RMD age to 73 it only applies to people who turned 72 in the year 2023 or later. If you turned age 72 in 2022 (born 1950), you were already required to begin RMD’s even though you had until April 1, 2023 to take your first RMD. Your second RMD is also due in 2023.
If you were born in 1951, turning 72 in 2023, your first RMD will be in 2024. You will have up to April 1, 2025 to take that distribution. Remember, however, when you choose to delay your first RMD until April 1 of the following year, you are subject to two RMD’s for that following year, as you will need to also take that current year’s RMD before December 31st of that year.
What about death and RMD’s?
If someone dies when they are subject to RMD’s, but they haven’t taken any or all of their RMD for the year of their death, the beneficiary must take the shortfall RMD before that tax year ends. There are large penalties for missing this RMD that could cost someone up to 25% in penalties. There is some relief available if someone dies near the end of the year making it impossible to take an RMD in a timely manner by the beneficiary. Speak to your accountant about this if you find yourself in that situation.
The rules for IRA beneficiaries changed in 2020, but significant questions remain to this day as to what the final regulations entail. For most non-spouse beneficiaries who inherited an IRA since 2020, you are subject to a 10-year rule requiring you to distribute the entire IRA by the end of the 10th year following the death of the original IRA owner. The questions arise when someone dies after 2020 and was already subject to RMD distributions. If the deceased was already subject to RMD’s in the year of their death, then the beneficiary subject to the 10-year rule would have to continue annual distributions for years 1-9, forfeiting the ability to wait until the end of the 10th year. RMD’s for this situation use the beneficiaries age to calculate the RMD in years 1-9.
If you are what the IRS deems to be an Eligible Beneficiary, you enjoy some different rules in terms of inherited IRA RMD’s. Eligible Beneficiaries generally are spouses, minor children of the deceased, disabled and chronically ill beneficiaries as well as non-spouse beneficiaries who are not more than 10 years younger than the deceased IRA owner. If death of IRA owner is after 2019, you are still able to stretch your RMD’s on the inherited IRA.
If you inherited an IRA in 2020 or later from someone that died prior to their required beginning date for RMD’s, and you are subject to the 10-year rule, you do NOT have to take an annual RMD in years 1-9.
If you inherit a ROTH IRA and would be subject to the 10-year rule, you do NOT have to take distributions in years 1-9 of the 10-year term. This applies whether or not the deceased was already subject to RMD’s in the year of their death.
Yikes… so, how are you doing in better understanding how the SECURE ACT 2.0 impacts your Required Minimum Distributions?
Take time to know the rules, speak to your CPA and don’t delay if there is a death in the family as steep penalties can apply for those not paying attention.
My name is David A. Kutcher, a retired Marine Corp Captain. My business partner in the lower 48 is Richard C. Scott, CLU, LUTCF. For nearly 40 years we have been helping folks with their personal retirement decisions. We encourage you to make an appointment and get ahead of your concerns as early as is possible. You can catch us on the radio every Saturday morning, “Retirement in the Last Frontier”, 8:30-9:30 on AM 650, Keni Radio. Frontier Retirement, 10928 Eagle River Road; Eagle River, AK, 99577, (907) 795-7452.
