IRS Issues Ruling on 10-Year RMD Rule

By Melanie Waddell

News October 08, 2022 at 09:38 AM

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The Internal Revenue Service late Friday waived the 50% penalty on missed 2021 and 2022 required minimum distributions for inherited retirement accounts within the 10-year payout rule.

With Notice 2022-53, the IRS "answered the No. 1 question" that advisors and retirement industry officials have been asking about the proposed Secure Act required minimum distribution [regulations] issued in February, according to Ed Slott of Ed Slott and Co.

The confusion "surrounded those beneficiaries who inherited in 2020 or later and were subject to the 10-year rule, where the entire inherited IRA balance would have to be withdrawn by the end of the 10th year after death," Slott explained in an email to ThinkAdvisor late Friday.

In the proposed regulations, the IRS said "that if these beneficiaries inherited from someone that was already taking RMDs, then not only are they subject to the 10-year rule, but they would also be required to take RMDs for years 1-9 after death," Slott noted.

"No one saw that coming, so many of these affected beneficiaries did not know to take these RMDs, and there is a 50% penalty for not taking RMDs," he added.

On Friday, the IRS provided relief by saying "that the 50% penalty will not apply to these beneficiaries for 2021 and 2022, which essentially means that these RMDs do not have to be taken at all — a free pass," Slott stated. "This relief only applies to these affected beneficiaries."

In a previous interview, Slott said he hoped Congress would fix the 10-year rule issue in the Secure Act 2.0 package.