Under the original Setting Every Community Up for Retirement Enhancement (Secure) Act, non-eligible designated beneficiaries who inherited an IRA in 2020 or later are subject to a 10-year payout period.
Most people anticipated that the beneficiary would be entitled to take distributions at any time during that period (without the need for annual required minimum distributions), as long as the account was empty after 10 years.
In a surprise interpretation, the IRS' proposed regulations stated that those beneficiaries would be subject to annual RMDs during the 10-year period if the account owner died after their required beginning date.
Because those proposed regulations were not released until 2022, the IRS offered relief and waived 2021 and 2022 RMDs. In Notice 2023-54, the IRS has now waived 2023 RMDs for non-eligible designated beneficiaries of individual retirement account owners who died after their required beginning date (including accounts inherited in 2022).
We asked two professors and authors of ALM's Tax Facts with opposing political viewpoints to share their opinions.
Was the IRS correct in offering relief for 2023 RMDs? Below is a summary of the debate that ensued between the two professors.
Their Votes:
Bloink
Byrnes
Their Reasons:
Byrnes: The proposed regulations the IRS released in 2022 shocked most tax experts, who were advising clients that they would not have to take RMDs during years 1-9 based on existing precedent on the prior five-year rule. It makes perfect sense that the IRS would continue to offer relief until additional guidance and transition support can be provided, so that taxpayers can effectively plan to structure their RMDs for the remaining term.
Bloink: We all know that not every eligible taxpayer will benefit from every piece of IRS relief — yet many will choose the benefit that is the most immediate. The IRS waived RMDs from inherited accounts for three years without a corresponding extension of the 10-year distribution period. Many taxpayers aren't paying attention to that fact. Because the 10-year period was not extended, taxpayers may actually increase their overall tax liability by "bunching" their distribution into a seven-year period — especially those taxpayers who inherited accounts in 2020.
Byrnes: The about-face by the IRS' proposed regulations threw a wrench in planning for many taxpayers who were just adjusting to the new 10-year rule. It's entirely possible that the IRS may choose to extend the 10-year payment window for taxpayers who inherited accounts in 2020, 2021 and 2022. Also, this relief gives clients the flexibility to choose whether they will benefit from taking a smaller RMD now or a larger RMD in the future.
Bloink: Unless the IRS plans to change course on its annual distribution requirement, this relief could do more harm than good. For example, taxpayers forced into larger distributions for the remaining years could be bumped into higher tax brackets — which can affect their eligibility for government subsidies, tax credits and deductions — and could even increase the cost of their Medicare premiums.
Byrnes: The IRS regularly grants transition relief when a new standard is implemented. It's not surprising that the IRS would grant this transition relief now, especially given the widespread impact that the new 10-year rule has on IRA beneficiaries. Taxpayers now have the option of delaying RMDs, so they can evaluate their unique financial situation and determine the best course of action based on that situation.
Bloink: The fact is, not every beneficiary of an inherited IRA understands the distribution rules governing these accounts. Tax professionals understand the Secure Act rules — but not every beneficiary consults a tax professional when making their decisions regarding RMDs. Without robust advice and guidance, continuing to provide RMD relief without a corresponding extension of the 10-year payout period is going to do more harm than good — especially for lower-income taxpayers.
Images: Adobe Stock
Learn more with Tax Facts, the go-to resource that answers critical tax questions with the latest tax developments. Online subscribers get access to exclusive e-newsletters.
Discover more resources on finance and taxes on the NU Resource Center.
Follow Tax Facts on LinkedIn and join the conversation on financial planning and targeted tax topics.
Get 10% off any Tax Facts product just for being a ThinkAdvisor reader! Complete the free trial form or call 859-692-2205 to learn more or get started today.
Bloink 
Byrnes 
