New Tax Rules Force Faster Payouts for Some IRA Holders. The rules on inherited retirement accounts

[mahatmakanejeeves]

I don't have any, but maybe you do.

The IRS wants many people who inherit IRAs and Roth IRAs to take faster payouts from these accounts

Link to tweet

New Tax Rules Force Faster Payouts for Some IRA Holders
The rules on inherited retirement accounts are getting less generous—and more complicated.

[Sherman A1]

1. Interesting

It is essentially “found” money 💰 for the beneficiary, so while this is probably not going to be popular with those who will have to potentially pay more, I can see it as not the worst thing to happen.

[doc03]

2. IRAs are called Individual (Retirement) Accounts.

They weren't meant to be a place to pass money on to your heirs. I hear people all the time complain about RMDs.

[jimfields33]

3. I actually think inherited IRA, annuities etc.

Should be withdrawn within a year (accept spouse). Pay taxes and then do whatever you want with the rest.

[progree]

4. (non-paywall) IRS Nixes 10-Year Stretch For Most Inherited IRAs, Forbes, 3/4/22

https://www.forbes.com/sites/ashleaebeling/2022/03/04/irs-nixes-10-year-stretch-for-most-inherited-iras/?sh=2594ee596ac3

Progree's intro:

It used to be that non-spouse beneficiaries had to take RMDs beginning in the year after the account-holder's death, but the annual RMD amounts were based on the life expectancy of the beneficiary. (This is still the case for IRAs and 401k's inherited before 2020 -- they aren't affected by the SECURE act or the proposed rules).

For IRA's and 401k's inherited in 2020 and after:

Then with the 2019 SECURE act, beneficiaries have to withdraw their entire account by the end of 10 years, but there was no required amount specified per year. Just that at the end of year 10, its all gone.

Well, now the Treasury is saying in its PROPOSED rule, is that there is an annual RMD requirement. As well as it must all be cleaned out by the end of year 10. The article doesn't say what the annual RMD is. (10% of the account, maybe?)

Some excerpts from the end of the article:

In March 2021, the IRS revised Publication 590-B (Distributions from IRAs), hinting that it would require annual RMDs to be paid in years 1-9 and the remaining IRA funds to be paid out in year 10. In a revision in May 2021, the IRS made clear that annual RMDs weren’t required under the 10-year rule, after all. Now, with the proposed regs, the IRS has flip-flopped back to its earlier position.

... If you’re a 2020 or later inheritor, IRA expert Denise Appleby says she recommends to wait until close to the end of the year before taking 2021 or 2022 RMDS. By then, the IRS will likely have issued either final RMD regulations, or notices and other guidance that flushes out the rules and state whether there is any blanket reprieve for those who did not take beneficiary RMDs, because IRS Publication 590-B said they did not have to.

Commentors are already chiming in. Some say the IRS is just flat out wrong: “These rules are contrary to the statute, as well as prior final regulations.” ...

... There’s a lot more in the new regulations: a new definition of a minor (age 21 even if your state says age 18) and new rules for IRAs left to trusts. The Treasury Department is accepting comments though May 25, 2022.

[PoindexterOglethorpe]

5. So you have to pay taxes on money you would otherwise not have had.

What exactly is the down side?

Sort of like people complaining bitterly because there are taxes on a house sale, as in something they bought for $20,000 in 1970 and now sells for a half million dollars. Just ask yourself, are you ahead of the game? I think you are. Stop complaining.