IRS Issues New 2023 RMD Relief for IRA Beneficiaries

The Internal Revenue Service has reassured IRA beneficiaries subject to the 10-year rule that they do not need to take required minimum distributions in 2023 from accounts they inherited in 2020 or later.

The agency also gave extra time for IRA owners turning 72 who unnecessarily started RMDs this year to return the money to their accounts.

IRS Notice 2023-54, released Friday, extends the 60-day rollover deadline for those IRA owners, Ed Slott of Ed Slott & Co. explained Monday in an interview. They now have until Sept. 30 to return the money to their accounts and avoid the tax bill, he said.

The Setting Every Community Up for Retirement Enhancement (Secure) 2.0 Act, enacted Dec. 29, 2022, raised the age at which RMDs must start to 73 from 72, beginning this year.

Because the law was enacted so late in the year, "financial institutions were not able to stop the presses on RMD notices that were sent out to IRA owners [turning 72 in 2023] notifying them that they have an RMD due for 2023 when they in fact did not," Slott told ThinkAdvisor in a previous interview.

In March, the IRS gave IRA providers until April 28 to notify IRA owners who will turn 72 in 2023 that they do not have an RMD this year.

The IRS relief in Notice 2023-23 was granted to financial institutions "because they may have sent out unintentionally incorrect RMD [required beginning date] info to their IRA holders," Slott said then.

Inherited IRAs

The second part of the just-released IRS guidance deals with the 10-year rule.

"Beneficiaries subject to RMDs in 2023 under the 10-year rule are granted relief; they don't have to take the RMD in 2023 due to the ongoing confusion under the IRS proposed regulation under the original Secure" act from 2019, Slott explained.

"We're still waiting for the final regs on that."

As Jeff Levine, Kitces.com's lead financial planning nerd and Buckingham Wealth Partners' chief planning officer, said in a tweet "… the IRS just answered the #1 question on many advisors' minds…

Q: Do beneficiaries subject to the 10-Year Rule who inherited from someone dying on/after their [required beginning date] need to take an RMD this year?

A: NO! (At least not for 2023)"

The Secure Act eliminated the ability for most people inheriting IRAs to "stretch" distributions over their own lifetimes, instead requiring them to empty the accounts within 10 years.

The IRS has said, in proposed regulations, that beneficiaries must take RMDs in years 1 through 9, instead of waiting until year 10 — causing widespread confusion among IRA beneficiaries and their advisors, as well as leading many to argue that this was not Congress' intent.

It doesn't look like we'll see the IRS' long-awaited final regulations on the subject any time soon, Slott said.