Page 35 - Investment Advisor December 2022/January 2023

of two individuals. Mortality rates are also provided. over a 10-year period, and they must take required minimum
Early in 2022, Natalie Choate, an attorney in Wellesley, distributions in years one through nine if the account owner
Massachusetts, pointed out that these new tables, designed to died after their own required beginning date.
reflect longer life expectancies, came into effect at a time that Under the new inherited account framework, eligible des-
Americans were actually experiencing a reversal in life expec- ignated beneficiaries can continue to “stretch” their inherited
tancies due to the coronavirus pandemic and its reverberations IRA withdrawals over their life expectancy. Such eligible
in the health care system. designated beneficiaries include a surviving spouse, a dis-
However, as Choate pointed out, this drop in life expectancy is abled beneficiary, a beneficiary with certain chronic illnesses
not expected to impact the IRS’s tables or mortality assumptions. and certain trust arrangements. A beneficiary who is a minor
For starters, the IRS tables are not updated often, and in fact, the child is also considered an eligible designated beneficiary, but
Treasury Department and the IRS have asked for feedback on only until they reach the age of maturity in their state, after
how often they should be updated. According to statements which point the 10-year rule applies.
from the federal agencies, they currently anticipate that they will Though they are clear in their inherited IRA RMD require-
review the tables “at the earlier of 10 years or whenever a new ments, the proposed rules have yet to be technically finalized
study of individual annuity mortality experience is published.” as of late 2022, and they could in fact be subject to meaningful
change. As such, advisory industry practitioners have been
unsure whether their clients with inherited IRAs must make
In early October, the Internal Revenue Service published such distributions for 2022 and 2023.
Notice 2022-53, in which the agency clarified that it intend- With Notice 2022-53, the answer has been given, and
ed to publish a final regulation pertaining to the distribu- advisors can now instruct their clients to wait and see what
tion of tax-sheltered assets held in inherited individual the final regulations entail before drawing any unwanted or
retirement accounts. unneeded funds from inherited IRAs.
Importantly, the notice informed financial planners and
their clients that they do not need to take distributions from
such inherited accounts for 2021 or 2022 — essentially giving The Internal Revenue Service set its 2023 cost-of-living
them a free pass for required minimum distributions while the adjustments for contributions to retirement accounts in
final regulations are being worked out, with those regulations late October.
applying “no earlier than the 2023 distribution calendar year.” The contribution limit for employees who participate in
Notice 2022-53 immediately grabbed the attention of the 401(k)s, 403(b)s, most 457 plans and the federal government’s
financial advisory industry, with many financial planners and Thrift Savings Plan will increase to $22,500, up from $20,500.
clients breathing a guarded sigh of relief about the IRS’ The limit on annual contributions to an IRA increased
guidance. Prior to the publication of the notice, to $6,500, up from $6,000.
there was substantial confusion about when The IRA catch-up contribution limit for
and whether certain benefices would have to individuals 50 and older is not subject to
begin drawing down inherited IRA assets. an annual cost-of-living adjustment and
The inherited IRA RMD issue ties remains $1,000, according to the IRS. The
back to a key legislative change made catch-up contribution limit for employees
by the Setting Every Community Up for 50 and older who participate in 401(k)
Retirement Enhancement (Secure) Act. s, 403(b)s, most 457 plans and the fed-
That law, passed late in 2019, did away with eral government’s Thrift Savings Plan is
the so-called “stretch IRA” in that it estab- increased to $7,500, up from $6,500.
lished a mandatory 10-year window for the With these increases, participants in
distribution of inherited IRA funds applying to 401(k), 403(b), most 457 plans, and the federal
most beneficiaries other than spouses. government’s Thrift Savings Plan who are 50 and
older can contribute up to $30,000 during 2023. The
Before the Secure Act, any heirs who inherited tra- catch-up contribution limit for employees aged 50 and over
ditional IRAs could stretch the account’s tax-deferring power
Yellen: Ting Shen/Bloomberg life expectancy. They could then enjoy decades of tax-free from $3,000.
by basing the calculation of the RMD amounts on their own
who participate in SIMPLE plans is increased to $3,500, up
asset appreciation that often would see the inherited account’s
The income ranges for determining eligibility to make
deductible contributions to traditional IRAs, to contribute to
value grow substantially rather than shrink, thanks to the
Roth IRAs, and to claim the Saver’s Credit all increased for
modest RMD payments.
Under proposed IRS regulations issued early in 2022, such
2023. The rates for different types of filers are listed in full in
IRA beneficiaries must instead fully draw down the account
the IRS Notice 2022-55.
DECEMBER 2022/JANUARY 2023 INVESTMENT ADVISOR 33