The IRS has proposed a rule change that differs from how Congress had intended RMDs to be taken from inherited IRAs in the 2019 tax changes. The current understanding of advisors and tax experts (as well as Congress) was that the beneficiary of an inherited IRA had until the end of the 10th year after the year in which she or he inherited an IRA to completely empty the account. So rather than taking out money each year it seemed that beneficiaries could chose to wait if that was most beneficial to them.
The new IRS proposed rules state that if the IRA was inherited from someone already taking RMDS, then the beneficiary needed to continue taking those RMDs each year (as well as completely emptying the account by the end of 10 years).
Since many beneficiaries were following the originally understood rules, most didn’t take RMDs in 2020 (when the IRS waived them) or even last year in 2021. And perhaps didn’t plan to take them in 2022.
We are paying close attention to this issue as it effects several of our clients. Once the IRS has made its final determination of the RMD rules, we’ll reach out to let you know if you need to take an RMD for 2022 (and whether you might need to do a catch up RMD for 2021).
Tax rules are never boring (to us, at least). And the rules keep changing.