Understanding the Impact of SECURE Act of 2019 & the 10-Year Rule

The SECURE Act of 2019 brought significant changes to the inheritance of retirement accounts, compelling most non-spouse beneficiaries to deplete an inherited IRA within a decade. Initial interpretations allowed beneficiaries to delay Required Minimum Distributions (RMDs) until the final year. However, the IRS later updated the guidance, indicating beneficiaries must take annual withdrawals if the original owner had started their RMDs. This follow-up brought about considerable confusion, especially regarding compliance and future distributions.

IRS Notice 2024-35: Relief for Missed RMDs (2021-2024)

Recognizing the confusion caused by shifting guidance, the IRS issued Notice 2024-35 offering temporary relief to individuals who missed RMDs between 2021 and 2024. This relief applies solely to IRAs inherited from original owners who had begun their RMDs before passing. This critical flexibility provided by the IRS is not expected to continue indefinitely.

New RMD Rule for 2025 and Its Implications

Starting January 1, 2025, the IRS will discontinue waivers for missed RMDs. Beneficiaries must now meet annual withdrawal requirements without fail to avoid facing penalties. Planning is paramount; beneficiaries need to establish and adhere to a strategic withdrawal plan to stay compliant and secure their inherited assets' fiscal longevity.

Exemptions from the SECURE Act Withdrawal Rule

While most face the 10-year withdrawal rule, certain groups remain exempt. These include surviving spouses, minor children (under 21), individuals with disabilities or chronic illness, non-designated beneficiaries like charities and estates, and those with accounts inherited before 2020. Understanding these exceptions is crucial for beneficiaries to plan effectively and ensure compliance with the evolving regulations.

The landscape of inherited IRAs is undoubtedly shifting, making it essential for beneficiaries to familiarize themselves with new rules and strategize accordingly. Consulting with a financial advisor can provide crucial insights, ensuring compliance and optimizing your financial strategy in light of the 2025 updates.