IRS Delays New Guidelines for Inherited IRAs

[CalPoppy]

For those following this saga:

The Internal Revenue Service said Friday it would delay enforcement of new rules for taking required withdrawals from some inherited retirement accounts until 2023…

…The relief applies to taxpayers who inherited retirement accounts in 2020 or 2021 who the IRS said had to take annual withdrawals right away instead of waiting until the end of a 10-year period to deplete their accounts…

… The new guidance doesn’t say that the annual required minimum distributions are waived, but by offering penalty relief, it essentially means that this group of taxpayers doesn’t have to take RMDs for 2021 and 2022, an IRS spokesman said.

Source WSJ article (likely behind paywall):
https://www.wsj.com/articles/irs-delays ... 1665182415

[sycamore]

Thanks for posting.

The actual IRS notice is here (PDF): https://www.irs.gov/pub/irs-drop/n-22-53.pdf

[pshonore]

I started reading the IRS release and my head started to hurt. Is it true that if a person is not an eligible designated beneficiary (in other words not a surviving spouse or minor child, etc), and they inherited an IRA in 2022 of a person who has started RMDs, then they must start taking an RMD in 2022 (assuming the decedent didn't take their 2022 RMD), and empty the IRA within 10 years?

[retiringwhen]

I started reading the IRS release and my head started to hurt. Is it true that if a person is not an eligible designated beneficiary (in other words not a surviving spouse or minor child, etc), and they inherited an IRA in 2022 of a person who has started RMDs, then they must start taking an RMD in 2022 (assuming the decedent didn't take their 2022 RMD), and empty the IRA within 10 years?

Yes

[CalPoppy]

I started reading the IRS release and my head started to hurt. Is it true that if a person is not an eligible designated beneficiary (in other words not a surviving spouse or minor child, etc), and they inherited an IRA in 2022 of a person who has started RMDs, then they must start taking an RMD in 2022 (assuming the decedent didn't take their 2022 RMD), and empty the IRA within 10 years?

Yes

Yes. However, it seems one could skip any RMD for 2021 or 2022 (per the IRS spokesperson’s comments in the WSJ article).

[SuzBanyan]

I started reading the IRS release and my head started to hurt. Is it true that if a person is not an eligible designated beneficiary (in other words not a surviving spouse or minor child, etc), and they inherited an IRA in 2022 of a person who has started RMDs, then they must start taking an RMD in 2022 (assuming the decedent didn't take their 2022 RMD), and empty the IRA within 10 years?

Yes

Yes. However, it seems one could skip any RMD for 2021 or 2022 (per the IRS spokesperson’s comments in the WSJ article).

Except in the specific example laid out where the decedent did not take their own RMD in the year of death. That has always been required and was not impacted by the proposed regulations in question.

[Alan S.]

I started reading the IRS release and my head started to hurt. Is it true that if a person is not an eligible designated beneficiary (in other words not a surviving spouse or minor child, etc), and they inherited an IRA in 2022 of a person who has started RMDs, then they must start taking an RMD in 2022 (assuming the decedent didn't take their 2022 RMD), and empty the IRA within 10 years?

Yes

Yes. However, it seems one could skip any RMD for 2021 or 2022 (per the IRS spokesperson’s comments in the WSJ article).

They must complete the decedent's RMD for 2022, if decedent did not.

In 2023, if the proposed Regs are approved, beneficiary would have to start annual life expectancy RMDs for years 1-9, then drain the account in 2032. If this particular provision is not adopted due to complaints filed by influential interest groups, then only the 10 year rule would apply. That said, many beneficiaries of inherited IRAs should consider taking ratable (1/10,1/9, 1/8 etc) annual distributions each year to avoid the tax spike at the end of the 10 year period. Nearly all beneficiaries will find that the proposed annual RMD is considerably less than these ratable distributions.

Note that inherited Roth IRAs are not subject to annual RMDs within the 10 year rule because all Roth owners pass PRIOR TO RBD.

Despite this recent IRS release, it still is not clear whether these waived beneficiary RMDs for 2021 and 2022 will have to be made up in 2023 if the provision is adopted, or if they will just be waived.

We are almost 3 years into the Secure Act, and the IRS is still working on these Regs. They have introduced multiple overly complex provisions, and this particular one is one of the least complex of those.

[krafty81]

So glad they clarified that. I inherited in 2020 but now will not take my first RMD until 2023, unless I have enough losses this year to balance an RMD.

[retired@50]

For those following this saga:

The Internal Revenue Service said Friday it would delay enforcement of new rules for taking required withdrawals from some inherited retirement accounts until 2023…

…The relief applies to taxpayers who inherited retirement accounts in 2020 or 2021 who the IRS said had to take annual withdrawals right away instead of waiting until the end of a 10-year period to deplete their accounts…

… The new guidance doesn’t say that the annual required minimum distributions are waived, but by offering penalty relief, it essentially means that this group of taxpayers doesn’t have to take RMDs for 2021 and 2022, an IRS spokesman said.

Source WSJ article (likely behind paywall):
https://www.wsj.com/articles/irs-delays ... 1665182415

Here's a paywall proof link:

More info here: https://www.wsj.com/articles/irs-delays ... _permalink

[Murdock7591]

In 2002 my brother and I inherited an IRA from my mother. We have been using the stretch IRA rule since we inherited it. (taking RMDs every year) My brother passed away last year and I inherited his IRA from our mother. (I am the successor) I am also an EDB, since I am not more than 10 years younger than my brother. My understanding is as a successor beneficiary I am strictly bound by the 10-year payout rule. My plan was not to take RMDs from this inherited IRA until the 10th year. Then I got word of this February IRS rule about having to take an RMDs each year (because RMDs were being taken by my brother) and have the account drained by the 10th year.
So with this new recent ruling, do I need to take an RMD this year or am I still able to follow the Congress rules- no RMD and drain by 2031?

[Alan S.]

So glad they clarified that. I inherited in 2020 but now will not take my first RMD until 2023, unless I have enough losses this year to balance an RMD.

You would need a net operating loss (NOL) or itemized deductions to reduce RMD taxable income by more than 3000. Capital losses (eg realized losses on brokerage investments) can only be used to offset up to 3000 of ordinary income.

[Alan S.]

In 2002 my brother and I inherited an IRA from my mother. We have been using the stretch IRA rule since we inherited it. (taking RMDs every year) My brother passed away last year and I inherited his IRA from our mother. (I am the successor) I am also an EDB, since I am not more than 10 years younger than my brother. My understanding is as a successor beneficiary I am strictly bound by the 10-year payout rule. My plan was not to take RMDs from this inherited IRA until the 10th year. Then I got word of this February IRS rule about having to take an RMDs each year (because RMDs were being taken by my brother) and have the account drained by the 10th year.
So with this new recent ruling, do I need to take an RMD this year or am I still able to follow the Congress rules- no RMD and drain by 2031?

A successor beneficiary cannot be an EDB. EDB treatment is limited to designated beneficiaries.

You are subject to the 10 year rule that will require you to drain this successor beneficiary inherited IRA by 12/31/2031. In addition, you must take annual RMDs in years 1-9 if your mother (not your brother) passed on or after her RBD. Her RBD would have been 4/1 of the year following the year that she turned 70.5 or would have. If you have to take RMDs they would be based on what would have been your brother's divisors, and his divisors would have to be reset for 2022 due to the new RMD tables. Once you determine what your brother's divisor for 2022 would have been had he lived, you would use that divisor for your 2022 beneficiary RMD. Finally, if brother did not complete his 2021 beneficiary RMD, you are responsible for completing that.

This response is indicative of how complex the proposed Secure Act RMD Regulations will be.

[Murdock7591]

In 2002 my brother and I inherited an IRA from my mother. We have been using the stretch IRA rule since we inherited it. (taking RMDs every year) My brother passed away last year and I inherited his IRA from our mother. (I am the successor) I am also an EDB, since I am not more than 10 years younger than my brother. My understanding is as a successor beneficiary I am strictly bound by the 10-year payout rule. My plan was not to take RMDs from this inherited IRA until the 10th year. Then I got word of this February IRS rule about having to take an RMDs each year (because RMDs were being taken by my brother) and have the account drained by the 10th year.
So with this new recent ruling, do I need to take an RMD this year or am I still able to follow the Congress rules- no RMD and drain by 2031?

A successor beneficiary cannot be an EDB. EDB treatment is limited to designated beneficiaries.

You are subject to the 10 year rule that will require you to drain this successor beneficiary inherited IRA by 12/31/2031. In addition, you must take annual RMDs in years 1-9 if your mother (not your brother) passed on or after her RBD. Her RBD would have been 4/1 of the year following the year that she turned 70.5 or would have. If you have to take RMDs they would be based on what would have been your brother's divisors, and his divisors would have to be reset for 2022 due to the new RMD tables. Once you determine what your brother's divisor for 2022 would have been had he lived, you would use that divisor for your 2022 beneficiary RMD. Finally, if brother did not complete his 2021 beneficiary RMD, you are responsible for completing that.

This response is indicative of how complex the proposed Secure Act RMD Regulations will be.

So if the IRS is delaying the new rules, wouldn't I be subjected to the rules that Congress inacted which state no RMD requirements for a successor beneficiary :

Did the original beneficiary inherit the IRA on or before December 31, 2019? If so, the successor beneficiary will have 10 calendar years following the year of the original beneficiary’s death to completely liquidate the IRA. This 10 year liquidation period will apply to any individual named a successor beneficiary. For instance, if the successor beneficiary is the original beneficiary’s spouse, he or she must liquidate the entire balance of the IRA with the 10 year term.

The successor beneficiary is not required to withdraw a minimum amount each year during the term. She may wait until the very end of the term to liquidate the IRA. The IRS will penalize her if she does not fully liquidate the account by the end of the 10 year term. The penalty will be equal to 50% of the balance remaining in the IRA at the end of the term. The IRS will levy the

[Alan S.]

In 2002 my brother and I inherited an IRA from my mother. We have been using the stretch IRA rule since we inherited it. (taking RMDs every year) My brother passed away last year and I inherited his IRA from our mother. (I am the successor) I am also an EDB, since I am not more than 10 years younger than my brother. My understanding is as a successor beneficiary I am strictly bound by the 10-year payout rule. My plan was not to take RMDs from this inherited IRA until the 10th year. Then I got word of this February IRS rule about having to take an RMDs each year (because RMDs were being taken by my brother) and have the account drained by the 10th year.
So with this new recent ruling, do I need to take an RMD this year or am I still able to follow the Congress rules- no RMD and drain by 2031?

A successor beneficiary cannot be an EDB. EDB treatment is limited to designated beneficiaries.

You are subject to the 10 year rule that will require you to drain this successor beneficiary inherited IRA by 12/31/2031. In addition, you must take annual RMDs in years 1-9 if your mother (not your brother) passed on or after her RBD. Her RBD would have been 4/1 of the year following the year that she turned 70.5 or would have. If you have to take RMDs they would be based on what would have been your brother's divisors, and his divisors would have to be reset for 2022 due to the new RMD tables. Once you determine what your brother's divisor for 2022 would have been had he lived, you would use that divisor for your 2022 beneficiary RMD. Finally, if brother did not complete his 2021 beneficiary RMD, you are responsible for completing that.

This response is indicative of how complex the proposed Secure Act RMD Regulations will be.

So if the IRS is delaying the new rules, wouldn't I be subjected to the rules that Congress inacted which state no RMD requirements for a successor beneficiary :

Did the original beneficiary inherit the IRA on or before December 31, 2019? If so, the successor beneficiary will have 10 calendar years following the year of the original beneficiary’s death to completely liquidate the IRA. This 10 year liquidation period will apply to any individual named a successor beneficiary. For instance, if the successor beneficiary is the original beneficiary’s spouse, he or she must liquidate the entire balance of the IRA with the 10 year term.

The successor beneficiary is not required to withdraw a minimum amount each year during the term. She may wait until the very end of the term to liquidate the IRA. The IRS will penalize her if she does not fully liquidate the account by the end of the 10 year term. The penalty will be equal to 50% of the balance remaining in the IRA at the end of the term. The IRS will levy the

You did not indicate that your mother passed after her RBD, but since this would not be an issue if she passed prior to RBD, I assume that she did pass after her RBD, and therefore if the proposed Regs are adopted as issued, you would have to continue the LE RMD schedule used by your brother.

That requirement is also described commented on in the following link from Ed Slott's website:
https://www.irahelp.com/slottreport/suc ... e%E2%80%9D

Notice 2022-53 also states that if you choose not to take these annual RMDs in 2022, the IRS will not pursue the penalty, so you are free not to take an RMD per brother's RMD schedule this year. For 2021, the RMD was brother's LE RMD, and if he did not complete it before passing, you are responsible for completing it. The 10 year rule for you did not start until 2022.

The Notice does not suggest what determination the IRS will arrive at when these Secure Act Regs are finalized. Some possibilities:
1) Your beneficiary RMDs will have to start in 2023. Brother's RMD schedule would apply, your age is immaterial.
2) The IRS relents to those organizations that have contested this entire provision, and you then would have no RMDs until year 10.
3) Your beneficiary RMDs start in 2023, and you are also required to make up the 2022 RMD (this is unlikely).
4) Successor beneficiaries revert to the former (pre Secure rules) in which case you would also have to complete brother's RMD schedule even though designated beneficiaries would not have annual RMDs within the 10 year rule.

Given the overall situation, I have no idea what the IRS will finally decide, and when they will issue the final Regs. If the final Regs include all the overly complex provisions in the proposed Regs, it will only lead to more non compliance of the rules since very few will understand all the issues that must be considered.

[telemark]

If I understand this correctly, the regulations are still in the proposed stage, with the additional provision that if they do go into effect, missed RMDs in 2021 and 2022 will not be penalized. So we are still in "wait and see" territory. Schrödinger's RMD...

Silly question: is there a distinction between an RMD and ordinary IRA withdrawals, some sort of "this counts as an RMD" flag that gets reported to the IRS? The reason I ask is that the Vanguard web site still won't calculate an RMD for my inherited IRA, perhaps because there were multiple beneficiaries. I will have to call them and find out what other information they need.

[telemark]

Followup: according to Vanguard

Note: Vanguard's RMD Service doesn't accommodate accounts that are being distributed according to the 5 or 10-year rules. If the 10-year rule is being used for your inherited account, you should consult your tax advisor if you have any questions about taking distributions in accordance with this rule.

If I withdraw any amount greater than or equal to what I estimate the RMD should be, is that good enough?

[Alan S.]

Followup: according to Vanguard

Note: Vanguard's RMD Service doesn't accommodate accounts that are being distributed according to the 5 or 10-year rules. If the 10-year rule is being used for your inherited account, you should consult your tax advisor if you have any questions about taking distributions in accordance with this rule.

If I withdraw any amount greater than or equal to what I estimate the RMD should be, is that good enough?

Yes.
All distributions are reported the same and there is no special identification on amounts that are RMDs. While custodians and advisors may endeavor to assist with the amount of RMDs, in complex situations the error rate is high. It could also be concluded that in complex situations, your tax advisor is not likely to be much more informed than trained custodian retirement plan personnel.

As Notice 2022-53 indicates, certain RMDs that may or may not be required within the 10 year rule do not have to be withdrawn this year or last year and there will be no penalty levied. If the IRS approves the proposed Regs and these RMDs would have been required, the IRS will either waive them entirely or will expect them to be calculated and made up in 2023, or whenever the IRS publishes the final Regs with enough time to react before year end. If these RMDs must be made up, the IRS would give you credit for any distributions you did take in 2021 or 2022 whether you considered them to be RMDs or not. Considering that retroactive calculations will just add even more confusion, if I had to guess I would expect the IRS to waive those RMDs and move on. They know that all funds must be distributed within the 10 year rule deadline, and if distributions are not spread out over that period, that the tax rate paid on a large one time distribution in year 10 may well be higher.

[retired@50]

Followup: according to Vanguard

Note: Vanguard's RMD Service doesn't accommodate accounts that are being distributed according to the 5 or 10-year rules. If the 10-year rule is being used for your inherited account, you should consult your tax advisor if you have any questions about taking distributions in accordance with this rule.

If I withdraw any amount greater than or equal to what I estimate the RMD should be, is that good enough?

Yes.
All distributions are reported the same and there is no special identification on amounts that are RMDs. While custodians and advisors may endeavor to assist with the amount of RMDs, in complex situations the error rate is high. It could also be concluded that in complex situations, your tax advisor is not likely to be much more informed than trained custodian retirement plan personnel.

As Notice 2022-53 indicates, certain RMDs that may or may not be required within the 10 year rule do not have to be withdrawn this year or last year and there will be no penalty levied. If the IRS approves the proposed Regs and these RMDs would have been required, the IRS will either waive them entirely or will expect them to be calculated and made up in 2023, or whenever the IRS publishes the final Regs with enough time to react before year end. If these RMDs must be made up, the IRS would give you credit for any distributions you did take in 2021 or 2022 whether you considered them to be RMDs or not. Considering that retroactive calculations will just add even more confusion, if I had to guess I would expect the IRS to waive those RMDs and move on. They know that all funds must be distributed within the 10 year rule deadline, and if distributions are not spread out over that period, that the tax rate paid on a large one time distribution in year 10 may well be higher.

Alan,
How does one calculate an RMD for an inherited IRA?

Is there a separate IRS table or something?

A friend is expecting to inherit an IRA from her father who is over RBD age.

Regards,

[Alan S.]

Followup: according to Vanguard

Note: Vanguard's RMD Service doesn't accommodate accounts that are being distributed according to the 5 or 10-year rules. If the 10-year rule is being used for your inherited account, you should consult your tax advisor if you have any questions about taking distributions in accordance with this rule.

If I withdraw any amount greater than or equal to what I estimate the RMD should be, is that good enough?

Yes.
All distributions are reported the same and there is no special identification on amounts that are RMDs. While custodians and advisors may endeavor to assist with the amount of RMDs, in complex situations the error rate is high. It could also be concluded that in complex situations, your tax advisor is not likely to be much more informed than trained custodian retirement plan personnel.

As Notice 2022-53 indicates, certain RMDs that may or may not be required within the 10 year rule do not have to be withdrawn this year or last year and there will be no penalty levied. If the IRS approves the proposed Regs and these RMDs would have been required, the IRS will either waive them entirely or will expect them to be calculated and made up in 2023, or whenever the IRS publishes the final Regs with enough time to react before year end. If these RMDs must be made up, the IRS would give you credit for any distributions you did take in 2021 or 2022 whether you considered them to be RMDs or not. Considering that retroactive calculations will just add even more confusion, if I had to guess I would expect the IRS to waive those RMDs and move on. They know that all funds must be distributed within the 10 year rule deadline, and if distributions are not spread out over that period, that the tax rate paid on a large one time distribution in year 10 may well be higher.

Alan,
How does one calculate an RMD for an inherited IRA?

Is there a separate IRS table or something?

A friend is expecting to inherit an IRA from her father who is over RBD age.

Regards,

Per the proposed Regs, unless the friend is disabled or chronically ill the 10 year rule will apply, but friend will also have to take annual life expectancy RMDs in years 1-9. The initial divisor is taken from the Single Life Table (Table I), using the friend's attained age in the year following the year of father's death. That divisor is then reduced by 1.0 for each successive year, so she will only need to access this RMD table one time. In year 10, whatever remains in the inherited IRA must be distributed.

These beneficiary RMDs actually help to avoid the tax impact of a large distribution at the end of the 10 year period.

If she inherited a Roth IRA there would be no annual beneficiary RMDs required, just the full distribution in year 10. That distribution would be tax free, so it would be beneficial to wait until year 10 to take the distribution in the case of a Roth IRA.

FInally, in the year she inherits she is responsible for completing father's RMD for that year if he did not do so.

[retired@50]

Followup: according to Vanguard

Note: Vanguard's RMD Service doesn't accommodate accounts that are being distributed according to the 5 or 10-year rules. If the 10-year rule is being used for your inherited account, you should consult your tax advisor if you have any questions about taking distributions in accordance with this rule.

If I withdraw any amount greater than or equal to what I estimate the RMD should be, is that good enough?

Yes.
All distributions are reported the same and there is no special identification on amounts that are RMDs. While custodians and advisors may endeavor to assist with the amount of RMDs, in complex situations the error rate is high. It could also be concluded that in complex situations, your tax advisor is not likely to be much more informed than trained custodian retirement plan personnel.

As Notice 2022-53 indicates, certain RMDs that may or may not be required within the 10 year rule do not have to be withdrawn this year or last year and there will be no penalty levied. If the IRS approves the proposed Regs and these RMDs would have been required, the IRS will either waive them entirely or will expect them to be calculated and made up in 2023, or whenever the IRS publishes the final Regs with enough time to react before year end. If these RMDs must be made up, the IRS would give you credit for any distributions you did take in 2021 or 2022 whether you considered them to be RMDs or not. Considering that retroactive calculations will just add even more confusion, if I had to guess I would expect the IRS to waive those RMDs and move on. They know that all funds must be distributed within the 10 year rule deadline, and if distributions are not spread out over that period, that the tax rate paid on a large one time distribution in year 10 may well be higher.

Alan,
How does one calculate an RMD for an inherited IRA?

Is there a separate IRS table or something?

A friend is expecting to inherit an IRA from her father who is over RBD age.

Regards,

Per the proposed Regs, unless the friend is disabled or chronically ill the 10 year rule will apply, but friend will also have to take annual life expectancy RMDs in years 1-9. The initial divisor is taken from the Single Life Table (Table I), using the friend's attained age in the year following the year of father's death. That divisor is then reduced by 1.0 for each successive year, so she will only need to access this RMD table one time. In year 10, whatever remains in the inherited IRA must be distributed.

These beneficiary RMDs actually help to avoid the tax impact of a large distribution at the end of the 10 year period.

If she inherited a Roth IRA there would be no annual beneficiary RMDs required, just the full distribution in year 10. That distribution would be tax free, so it would be beneficial to wait until year 10 to take the distribution in the case of a Roth IRA.

FInally, in the year she inherits she is responsible for completing father's RMD for that year if he did not do so.

Thanks. This response was helpful.

Regards,

[Bohemiana]

Fidelity is automatically calculating my RMD on my inherited traditional IRA and on my inherited ROTH IRA. Schwab is not calculating any RMD.

My mom died in 2021 (she took her RMD for 2021). Her IRAs were inherited from my father who died in 2014...Does this make a difference to my required distributions??

From my understanding regarding an inherited ROTH IRA as explained by a Fidelity & Schwab reps, I can simply transfer it all of the inherited ROTH into my own ROTH IRA any time before year 10. Is that incorrect? To me, if that's correct, it's safer to put it in my own ROTH now than keep in in the inherited and gamble if they change the ROTH rules down the line.

[single2019]

Fidelity is automatically calculating my RMD on my inherited traditional IRA and on my inherited ROTH IRA. Schwab is not calculating any RMD.

My mom died in 2021 (she took her RMD for 2021). Her IRAs were inherited from my father who died in 2014...Does this make a difference to my required distributions??

From my understanding regarding an inherited ROTH IRA as explained by a Fidelity & Schwab reps, I can simply transfer it all of the inherited ROTH into my own ROTH IRA any time before year 10. Is that incorrect? To me, if that's correct, it's safer to put it in my own ROTH now than keep in in the inherited and gamble if they change the ROTH rules down the line.

You cannot transfer inherited Roth IRA to your own Roth IRA.

PS: Roth is not an acronym

[Alan S.]

Fidelity is automatically calculating my RMD on my inherited traditional IRA and on my inherited ROTH IRA. Schwab is not calculating any RMD.

My mom died in 2021 (she took her RMD for 2021). Her IRAs were inherited from my father who died in 2014...Does this make a difference to my required distributions??

From my understanding regarding an inherited ROTH IRA as explained by a Fidelity & Schwab reps, I can simply transfer it all of the inherited ROTH into my own ROTH IRA any time before year 10. Is that incorrect? To me, if that's correct, it's safer to put it in my own ROTH now than keep in in the inherited and gamble if they change the ROTH rules down the line.

You will be subject to the 10 year rule, but additional data is needed to determine if you will also be subject to annual RMDs in years 1-9. However, even if you will be under the proposed IRS Regs, the IRS just issued Notice 2022-53 which indicated that you do NOT have to take a beneficiary RMD in 2022. But first, please provide the following additional info.

Did mom assume ownership of Dad's IRA, or did she maintain it as the beneficiary right up to her passing?
If maintained as inherited, need to know Dad's attained age in 2014.
But if mom assumed ownership, need to know her attained age in 2021. You can tell by the title on the inherited IRAs whether she was the owner or the beneficiary.

It is correct that you cannot roll either of these accounts over to your own IRAs - you must retitle them as inherited IRAs and name your own beneficiary. Note that any distribution you take will not be eligible for rollover.

[2000rpm]

I read through the IRS notice, this thread, and the WSJ article. Here's my situation. I inherited a traditional IRA in 2020 from my mother who was taking RMD's regularly. I am not of RMD age yet. I also am not an eligible designated beneficiary.

I took no RMD in 2020 due to the CARES act waiving it. I didn't take RMD's in 2021 nor 2022 because I didn't think I had to (assumed needed to empty by 2030).

I believe what I am taking from this is that the rules are changing such that 2020 and on require an RMD based on my age. 2020 is forgiven due to CARES act. Penalties are forgiven for 2021-2 (essentially making them RMD-free). But for 2023 and on, an RMD is required based on my age. Does that comport with others understanding of the issue? Tnx.

[ronholl]

I have seen conflicting information on the RMD's for inherited IRA's. I even sent an email to Brandon Ford at IRS, whose name is on the last page of the notice but have not heard back.

My Fidelity guy (unmanaged account) suggests we take RMD's for 2021 and 2022 this year. He says we may need to make 3 years worth of RMD's next year if we don't do that.

I read it differently and see these changes don't take affect until 2023 and there are no penalties for missed RMD''s. Does that mean we would be excused from making them for 2021 and 2022 and can just plan to take it in 2023?

[samsoes]

For those following this saga:

The Internal Revenue Service said Friday it would delay enforcement of new rules for taking required withdrawals from some inherited retirement accounts until 2023…

…The relief applies to taxpayers who inherited retirement accounts in 2020 or 2021 who the IRS said had to take annual withdrawals right away instead of waiting until the end of a 10-year period to deplete their accounts…

… The new guidance doesn’t say that the annual required minimum distributions are waived, but by offering penalty relief, it essentially means that this group of taxpayers doesn’t have to take RMDs for 2021 and 2022, an IRS spokesman said.

Source WSJ article (likely behind paywall):
https://www.wsj.com/articles/irs-delays ... 1665182415

Here's a paywall proof link:

More info here: https://www.wsj.com/articles/irs-delays ... _permalink

Nope. Paywall there, too.

[retired@50]

For those following this saga:

The Internal Revenue Service said Friday it would delay enforcement of new rules for taking required withdrawals from some inherited retirement accounts until 2023…

…The relief applies to taxpayers who inherited retirement accounts in 2020 or 2021 who the IRS said had to take annual withdrawals right away instead of waiting until the end of a 10-year period to deplete their accounts…

… The new guidance doesn’t say that the annual required minimum distributions are waived, but by offering penalty relief, it essentially means that this group of taxpayers doesn’t have to take RMDs for 2021 and 2022, an IRS spokesman said.

Source WSJ article (likely behind paywall):
https://www.wsj.com/articles/irs-delays ... 1665182415

Here's a paywall proof link:

More info here: https://www.wsj.com/articles/irs-delays ... _permalink

Nope. Paywall there, too.

I wonder if there is a time limit to the viability of the link?

Try this one if you want (copied fresh today): https://www.wsj.com/articles/irs-delays ... _permalink

Note the trailing word in the link is "permalink" which would have given me the impression that it would last forever.

Regards,

[Alan S.]

I have seen conflicting information on the RMD's for inherited IRA's. I even sent an email to Brandon Ford at IRS, whose name is on the last page of the notice but have not heard back.

My Fidelity guy (unmanaged account) suggests we take RMD's for 2021 and 2022 this year. He says we may need to make 3 years worth of RMD's next year if we don't do that.

I read it differently and see these changes don't take affect until 2023 and there are no penalties for missed RMD''s. Does that mean we would be excused from making them for 2021 and 2022 and can just plan to take it in 2023?

I don't think that the recent IRS Notice can be projected beyond 2022. It waives any penalty for a certain type of beneficiary RMD for 2021 and 2022, but it's still anyone's guess what the final Regs will require or when they will be released. The possibilities remain:

1) Those particular 2021 and 2022 beneficiary RMDs are waived, but in 2023 LE RMDs will begin using correct divisors.
2) Those particular 2021 and 2022 RMDs are just deferred and must be calculated and distributed in 2023 along with the 2023 RMD.
3) The IRS bends to recommendations from influential retirement plan advocates and will not require annual RMDs within the 10 year rule as initially expected and indicated.
4) Different treatment for successor beneficiaries than designated beneficiaries with respect to the above RMDs.

[Uncle Morris]

I started reading the IRS release and my head started to hurt. Is it true that if a person is not an eligible designated beneficiary (in other words not a surviving spouse or minor child, etc), and they inherited an IRA in 2022 of a person who has started RMDs, then they must start taking an RMD in 2022 (assuming the decedent didn't take their 2022 RMD), and empty the IRA within 10 years?

Yes

Yes. However, it seems one could skip any RMD for 2021 or 2022 (per the IRS spokesperson’s comments in the WSJ article).

They must complete the decedent's RMD for 2022, if decedent did not.

In 2023, if the proposed Regs are approved, beneficiary would have to start annual life expectancy RMDs for years 1-9, then drain the account in 2032. If this particular provision is not adopted due to complaints filed by influential interest groups, then only the 10 year rule would apply. That said, many beneficiaries of inherited IRAs should consider taking ratable (1/10,1/9, 1/8 etc) annual distributions each year to avoid the tax spike at the end of the 10 year period. Nearly all beneficiaries will find that the proposed annual RMD is considerably less than these ratable distributions.

Note that inherited Roth IRAs are not subject to annual RMDs within the 10 year rule because all Roth owners pass PRIOR TO RBD.

Despite this recent IRS release, it still is not clear whether these waived beneficiary RMDs for 2021 and 2022 will have to be made up in 2023 if the provision is adopted, or if they will just be waived.

We are almost 3 years into the Secure Act, and the IRS is still working on these Regs. They have introduced multiple overly complex provisions, and this particular one is one of the least complex of those.

With a partial retirement coming in a year or two, it would make sense to keep holding off on taking distributions till then, if allowed. Right?

[CalPoppy]

I started reading the IRS release and my head started to hurt. Is it true that if a person is not an eligible designated beneficiary (in other words not a surviving spouse or minor child, etc), and they inherited an IRA in 2022 of a person who has started RMDs, then they must start taking an RMD in 2022 (assuming the decedent didn't take their 2022 RMD), and empty the IRA within 10 years?

Yes

Yes. However, it seems one could skip any RMD for 2021 or 2022 (per the IRS spokesperson’s comments in the WSJ article).

They must complete the decedent's RMD for 2022, if decedent did not.

In 2023, if the proposed Regs are approved, beneficiary would have to start annual life expectancy RMDs for years 1-9, then drain the account in 2032. If this particular provision is not adopted due to complaints filed by influential interest groups, then only the 10 year rule would apply. That said, many beneficiaries of inherited IRAs should consider taking ratable (1/10,1/9, 1/8 etc) annual distributions each year to avoid the tax spike at the end of the 10 year period. Nearly all beneficiaries will find that the proposed annual RMD is considerably less than these ratable distributions.

Note that inherited Roth IRAs are not subject to annual RMDs within the 10 year rule because all Roth owners pass PRIOR TO RBD.

Despite this recent IRS release, it still is not clear whether these waived beneficiary RMDs for 2021 and 2022 will have to be made up in 2023 if the provision is adopted, or if they will just be waived.

We are almost 3 years into the Secure Act, and the IRS is still working on these Regs. They have introduced multiple overly complex provisions, and this particular one is one of the least complex of those.

With a partial retirement coming in a year or two, it would make sense to keep holding off on taking distributions till then, if allowed. Right?

Makes sense to me

[Tdubs]

Does the example at the bottom of this article make sense for RMD withdrawals?

https://www.morningstar.com/articles/11 ... -year-rule

[retiringwhen]

Does the example at the bottom of this article make sense for RMD withdrawals?

https://www.morningstar.com/articles/11 ... -year-rule

Yes it does, but it is a very specific case with specific facts and circumstances. As the article points out carefully, there are lots of nooks an crannies to this mess. You cannot generalize from the example, work from the overview towards your situation.

[ronholl]

Link to the 2022 draft IRS Pub 590-B from 12/1/22 that explains RMD's. I think this confirms the RMD's are not required for 2022 and the inherited IRA's withdrawals are not needed during the 10 years.

"10-year rule. The 10-year rule requires the IRA beneficiaries who are not taking life expectancy payments to withdraw the entire balance of the IRA by December 31 of the year containing the 10th anniversary of the owner’s death. For example, if the owner died in 2022, the beneficiary would have to fully distribute the IRA by December 31, 2032. The beneficiary is allowed, but not required, to take distributions prior to that date."

https://www.irs.gov/pub/irs-dft/p590b--dft.pdf

[Tdubs]

Link to the 2022 draft IRS Pub 590-B from 12/1/22 that explains RMD's. I think this confirms the RMD's are not required for 2022 and the inherited IRA's withdrawals are not needed during the 10 years.

"10-year rule. The 10-year rule requires the IRA beneficiaries who are not taking life expectancy payments to withdraw the entire balance of the IRA by December 31 of the year containing the 10th anniversary of the owner’s death. For example, if the owner died in 2022, the beneficiary would have to fully distribute the IRA by December 31, 2032. The beneficiary is allowed, but not required, to take distributions prior to that date."

https://www.irs.gov/pub/irs-dft/p590b--dft.pdf

Yes, that does seem to be the way to read it--top of page 10.

[Uncle Morris]

So, did the IRS backtrack from what I understood they had indicated previously, that distributions were really supposed to happen in 2021 and 2022, but that as a special exception, they would forego penalties for those two years, and that one would normally have to make some sort of RMD each of the ten years?

[Tdubs]

So, did the IRS backtrack from what I understood they had indicated previously, that distributions were really supposed to happen in 2021 and 2022, but that as a special exception, they would forego penalties for those two years, and that one would normally have to make some sort of RMD each of the ten years?

It seems so. That last line seems pretty clear: "The beneficiary is allowed, but not required, to take distributions prior to that date."

[mattshwink]

So, did the IRS backtrack from what I understood they had indicated previously, that distributions were really supposed to happen in 2021 and 2022, but that as a special exception, they would forego penalties for those two years, and that one would normally have to make some sort of RMD each of the ten years?

It seems so. That last line seems pretty clear: "The beneficiary is allowed, but not required, to take distributions prior to that date."

Interesting. We (my wife) just inherited an IRA from her dad (within the last month). The RMDs would be somewhere in the $40,000 range starting next year (we do have to take some of the rest of his RMD this year, since he had not fully fulfilled his RMD for 2022). But we're planning to take to the top of the 24% bracket this year, and next year too, as it would be a sizeable tax hit in year 10 (2032). Beyond 2023 we'll have to see what happens with tax rates. But likely we continue a strategy similar to this. It's possible we retire at or before year 10 (depends on what markets do, of course).

Just have to stay tuned.

[Uncle Morris]

If I understand things correctly (never guaranteed!), this dropping the annual RMD requirement will make it possible for adult children approaching retirement and who receive inherited IRAs to start taking their distributions post-retirement when they're earning less, and this can lead to significant tax savings.

Tdubs, thank you.

[SuzBanyan]

So, did the IRS backtrack from what I understood they had indicated previously, that distributions were really supposed to happen in 2021 and 2022, but that as a special exception, they would forego penalties for those two years, and that one would normally have to make some sort of RMD each of the ten years?

It seems so. That last line seems pretty clear: "The beneficiary is allowed, but not required, to take distributions prior to that date."

Interesting. We (my wife) just inherited an IRA from her dad (within the last month). The RMDs would be somewhere in the $40,000 range starting next year (we do have to take some of the rest of his RMD this year, since he had not fully fulfilled his RMD for 2022). But we're planning to take to the top of the 24% bracket this year, and next year too, as it would be a sizeable tax hit in year 10 (2032). Beyond 2023 we'll have to see what happens with tax rates. But likely we continue a strategy similar to this. It's possible we retire at or before year 10 (depends on what markets do, of course).

Just have to stay tuned.

I think you are among many who inherit traditional IRAs who may benefit from taking a distribution each year rather than waiting to take a single large distribution in a single year. So the new rules, if and when adopted, may only effect you on the margins, that is, you will be taking a substantial distribution each year no matter the RMD, but still need to make sure that it is substantial enough to satisfy the RMD.

[pshonore]

If I understand things correctly (never guaranteed!), this dropping the annual RMD requirement will make it possible for adult children approaching retirement and who receive inherited IRAs to start taking their distributions post-retirement when they're earning less, and this can lead to significant tax savings.

Tdubs, thank you.

I thought unless you're an EDB (adult children are usually not) or surviving spouse, there really is no change to the rules, and no forgiveness if you miss a distribution.

[Alan S.]

It is obvious that the recent draft of Pub 590B does NOT incorporate many of the IRS proposed Secure Act Regs, therefore I would not interpret this draft as backtracking on any of the proposed changes.

1) The draft is a 2022 Pub 590 B and these are normally issued near the end of the year they apply to. The proposed Secure Act Regs will not be final in 2022, and the IRS has already waived annual beneficiary RMDs within the 10 year rule for 2021 and 2022 in Notice 2022-53. https://www.irs.gov/pub/irs-drop/n-22-53.pdf

2) While the 590 B draft is not indicative of yet another IRS reversal of policy, certain overly complex provisions in the proposed Secure Act Regs (released Feb 2022) may well be re considered by the IRS when they consider the fallout of overly excessive complexity. We'll find out when the final Regs are published.

3) Note that while annual RMDs within the 10 year rule have cornered much of the discussion, there are several other provisions included in the proposal that will cause problems. Notable among those is a new age 72 age limit for certain surviving spouses to elect ownership of an inherited IRA. Such spouses will have to take a distribution to get this done. There are inconsistencies about this in the proposed Regs. Another such change is disallowance of a rollover (including a conversion) from any IRA account until RMDs have been completed for ALL such IRA accounts. Finally, another proposal negatively affects IRA beneficiaries older than the decedent who are EDBs and use decedent's age for RMDs. These beneficiaries would not only have to track the decedents age used for the RMD divisor, they would also have to track their own ages, and when the divisor for their own age reached 1.0, a total distribution will be required. In other words, the older beneficiary will have to track two different divisors.

4) As soon as the final decision is made by the IRS (and we are already 3 years into this), the IRS will then have to simplify the results in the 2023 edition of Pub 590 B. Perhaps then, they will realize that they have produced excessive complexity, none of which was actually required by the Secure Act itself, and this complexity will hinder beneficiary RMD compliance.

[retiringwhen]

Sigh, thanks Alan S.

[elgob]

I don't think that the recent IRS Notice can be projected beyond 2022. It waives any penalty for a certain type of beneficiary RMD for 2021 and 2022, but it's still anyone's guess what the final Regs will require or when they will be released. The possibilities remain:

1) Those particular 2021 and 2022 beneficiary RMDs are waived, but in 2023 LE RMDs will begin using correct divisors.
2) Those particular 2021 and 2022 RMDs are just deferred and must be calculated and distributed in 2023 along with the 2023 RMD.
3) The IRS bends to recommendations from influential retirement plan advocates and will not require annual RMDs within the 10 year rule as initially expected and indicated.
4) Different treatment for successor beneficiaries than designated beneficiaries with respect to the above RMDs.

Alan, do you know if the "first-money-out" rule applies beyond a particular year?

Normally the rule is applied to hold that the first money taken out of an IRA in any given year is deemed to be the RMD for that year, until that year's RMD obligation is fully satisfied. I'm wondering about the situation where RMDs for a previous year were not taken. Does the "first-money-out" rule operate to deem the first money out in a subsequent year to be first attributed to the untaken RMDs from a previous year?

If so, and if IRS sticks with its view that RMDs are required in Years 1-9, then the "first-money-out" rule would catch an inherited IRA beneficiary who didn't take RMDs in 2021 and/or 2022, but starts withdrawing in 2023, thinking that he/she is taking the 2023 RMD, only to have those dollars first deemed applied to the 2021/2022 RMDs.

[Alan S.]

I don't think that the recent IRS Notice can be projected beyond 2022. It waives any penalty for a certain type of beneficiary RMD for 2021 and 2022, but it's still anyone's guess what the final Regs will require or when they will be released. The possibilities remain:

1) Those particular 2021 and 2022 beneficiary RMDs are waived, but in 2023 LE RMDs will begin using correct divisors.
2) Those particular 2021 and 2022 RMDs are just deferred and must be calculated and distributed in 2023 along with the 2023 RMD.
3) The IRS bends to recommendations from influential retirement plan advocates and will not require annual RMDs within the 10 year rule as initially expected and indicated.
4) Different treatment for successor beneficiaries than designated beneficiaries with respect to the above RMDs.

Alan, do you know if the "first-money-out" rule applies beyond a particular year?

Normally the rule is applied to hold that the first money taken out of an IRA in any given year is deemed to be the RMD for that year, until that year's RMD obligation is fully satisfied. I'm wondering about the situation where RMDs for a previous year were not taken. Does the "first-money-out" rule operate to deem the first money out in a subsequent year to be first attributed to the untaken RMDs from a previous year?

If so, and if IRS sticks with its view that RMDs are required in Years 1-9, then the "first-money-out" rule would catch an inherited IRA beneficiary who didn't take RMDs in 2021 and/or 2022, but starts withdrawing in 2023, thinking that he/she is taking the 2023 RMD, only to have those dollars first deemed applied to the 2021/2022 RMDs.

Great question. It addresses a major flaw with respect to IRS Reg 1.402(c)(2) QA 7 being largely ignored, including by experts.

Q-7: When is a distribution from a plan a required minimum distribution under section 401(a)(9)?

A-7: (a) General rule. Except as provided in paragraphs (b) and (c) of this Q&A, if a minimum distribution is required for a calendar year, the amounts distributed during that calendar year are treated as required minimum distributions under section 401(a)(9), to the extent that the total required minimum distribution under section 401(a)(9) for the calendar year has not been satisfied. Accordingly, these amounts are not eligible rollover distributions. For example, if an employee is required under section 401(a)(9) to receive a required minimum distribution for a calendar year of $5,000 and the employee receives a total of $7,200 in that year, the first $5,000 distributed will be treated as the required minimum distribution and will not be an eligible rollover distribution and the remaining $2,200 will be an eligible rollover distribution if it otherwise qualifies. If the total section 401(a)(9) required minimum distribution for a calendar year is not distributed in that calendar year (e.g., when the distribution for the calendar year in which the employee reaches age 70 1/2 is made on the following April 1), the amount that was required but not distributed is added to the amount required to be distributed for the next calendar year in determining the portion of any distribution in the next calendar year that is a required minimum distribution.

It is clear that all missed RMDs are technically to be brought forward and treated as current year RMDs, and none of this amount is rollover eligible. So the real elephant in the room applies to someone who never took their RMDs and then does a large 60 day rollover or a conversion of mostly accumulated RMDs which then brings those RMDs current, but a large excess contribution is created since none of this RMD money was eligible for rollover. A huge taxable distribution results and a large excess contribution to be removed.

While the above Reg is driven by RMD rollover restrictions, your question is limited to the first dollars out requirement. Now the IRS has waived certain beneficiary RMDs for 2021 and 2022 due to the extensive delay in finalizing the Secure Act Regs, therefore those two years of beneficiary RMDs would not accumulate into 2023 and beyond. But let's assume this is an EDB so those RMDs were not waived but were not taken by the EDB and therefore should be added to the 2023 RMD. The above quoted Reg does not provide clarity on whether a given distribution is applied to the oldest delinquent RMD first or to the current year RMD first.

Note that while the quoted Reg was written for qualified plans, there is a companion Reg for IRAs (1.408-8, QA 4) that coordinates with the above quoted Reg. In short, there is a major compliance gap here.

[elgob]

Alan, thanks for the detailed reply, very interesting!

I think I might disagree with you on this aspect:

... Now the IRS has waived certain beneficiary RMDs for 2021 and 2022 due to the extensive delay in finalizing the Secure Act Regs, therefore those two years of beneficiary RMDs would not accumulate into 2023 and beyond.

The IRS's position in the proposed regs was that the statute imposes an RMD requirement for Years 1-9. If you take that view, then I would think that the IRS has no power to waive the RMDs themselves, only the discretion to waive the penalty for nonpayment. And as I read Notice 2022-53, that's all they did: "To the extent a taxpayer did not take a specified RMD (as defined in Section IV.C of this notice), the IRS will not assert that an excise tax is due under section 4974." (Section IV(B))

So I'm thinking that those untaken 2021 and 2022 RMDs are still there, not penalized but not gone, and consequently they carry into 2023. If that's the case, seems like a beneficiary would still have to take them in 2023, plus the 2023 RMD, to avoid having the 2023 RMD be deemed not taken and therefore penalized.

What do you think?

[Alan S.]

When the Regs are eventually finalized, the IRS should clarify whether those two years of RMDs are required to be calculated and distributed in 2023, or much more likely are waived and the IRS makes up the shortfall gradually over the remaining 8 years.

Right now we have no statute governing RMDs within the 10 year rule. All we have are proposed regulations that are highly complex and that is why we are already 3 years down the road with taxpayers and plan administrators in limbo. In fact, there are many other provisions in the proposals that are more complex than RMDs within the 10 year rule. The IRS will have to act soon, and then try and simplify the results in the next edition of Pub 590 B.

Many beneficiaries may want to draw down the inherited IRA roughly equally over the 10-11 year period to avoid a tax spike at the end, and such distributions would be greater than the annual RMD amount except for very old beneficiaries. For these beneficiaries, the actual RMD would be a moot point.

[elgob]

Right now we have no statute governing RMDs within the 10 year rule. All we have are proposed regulations that are highly complex and that is why we are already 3 years down the road with taxpayers and plan administrators in limbo.

There's the rub. In the proposed regs, I think the IRS takes the view that we do in fact have a statute governing and requiring RMDs in Years 1-9 ... namely, Section 401(a)(9)(B)(i) ... which IRS considers itself to be implementing in those regs. If that view of the statute prevails, then it would follow that IRS doesn't have the power to waive the RMDs, only the penalties.

[MarkNYC]

I don't think that the recent IRS Notice can be projected beyond 2022. It waives any penalty for a certain type of beneficiary RMD for 2021 and 2022, but it's still anyone's guess what the final Regs will require or when they will be released. The possibilities remain:

1) Those particular 2021 and 2022 beneficiary RMDs are waived, but in 2023 LE RMDs will begin using correct divisors.
2) Those particular 2021 and 2022 RMDs are just deferred and must be calculated and distributed in 2023 along with the 2023 RMD.
3) The IRS bends to recommendations from influential retirement plan advocates and will not require annual RMDs within the 10 year rule as initially expected and indicated.
4) Different treatment for successor beneficiaries than designated beneficiaries with respect to the above RMDs.

Alan, do you know if the "first-money-out" rule applies beyond a particular year?

Normally the rule is applied to hold that the first money taken out of an IRA in any given year is deemed to be the RMD for that year, until that year's RMD obligation is fully satisfied. I'm wondering about the situation where RMDs for a previous year were not taken. Does the "first-money-out" rule operate to deem the first money out in a subsequent year to be first attributed to the untaken RMDs from a previous year?

If so, and if IRS sticks with its view that RMDs are required in Years 1-9, then the "first-money-out" rule would catch an inherited IRA beneficiary who didn't take RMDs in 2021 and/or 2022, but starts withdrawing in 2023, thinking that he/she is taking the 2023 RMD, only to have those dollars first deemed applied to the 2021/2022 RMDs.

Great question. It addresses a major flaw with respect to IRS Reg 1.402(c)(2) QA 7 being largely ignored, including by experts.

Q-7: When is a distribution from a plan a required minimum distribution under section 401(a)(9)?

A-7: (a) General rule. Except as provided in paragraphs (b) and (c) of this Q&A, if a minimum distribution is required for a calendar year, the amounts distributed during that calendar year are treated as required minimum distributions under section 401(a)(9), to the extent that the total required minimum distribution under section 401(a)(9) for the calendar year has not been satisfied. Accordingly, these amounts are not eligible rollover distributions. For example, if an employee is required under section 401(a)(9) to receive a required minimum distribution for a calendar year of $5,000 and the employee receives a total of $7,200 in that year, the first $5,000 distributed will be treated as the required minimum distribution and will not be an eligible rollover distribution and the remaining $2,200 will be an eligible rollover distribution if it otherwise qualifies. If the total section 401(a)(9) required minimum distribution for a calendar year is not distributed in that calendar year (e.g., when the distribution for the calendar year in which the employee reaches age 70 1/2 is made on the following April 1), the amount that was required but not distributed is added to the amount required to be distributed for the next calendar year in determining the portion of any distribution in the next calendar year that is a required minimum distribution.

It is clear that all missed RMDs are technically to be brought forward and treated as current year RMDs, and none of this amount is rollover eligible. So the real elephant in the room applies to someone who never took their RMDs and then does a large 60 day rollover or a conversion of mostly accumulated RMDs which then brings those RMDs current, but a large excess contribution is created since none of this RMD money was eligible for rollover. A huge taxable distribution results and a large excess contribution to be removed.

While the above Reg is driven by RMD rollover restrictions, your question is limited to the first dollars out requirement. Now the IRS has waived certain beneficiary RMDs for 2021 and 2022 due to the extensive delay in finalizing the Secure Act Regs, therefore those two years of beneficiary RMDs would not accumulate into 2023 and beyond. But let's assume this is an EDB so those RMDs were not waived but were not taken by the EDB and therefore should be added to the 2023 RMD. The above quoted Reg does not provide clarity on whether a given distribution is applied to the oldest delinquent RMD first or to the current year RMD first.

The language of the regulation is ambiguous, but here is my interpretation.

I don't agree with the general statement that all missed RMDs are brought forward and treated as current year RMDs. If that were true then the 50% penalty for missed RMDs would apply not just to the first year the RMD was missed but every subsequent year until the missed RMD was actually distributed, similar to the 6% penalty for excess contributions. Form 5329 shows that this is not done.

I think the regulation intends to say that, when determining an eligible rollover distribution amount in an RMD year, any amounts distributed are fist applied to the current year RMD, and any additional amounts distributed must be applied to any prior year missed RMD amounts, if any, before arriving at the amount distributed that would be eligible for rollover.

Any interpretation that amounts distributed are first applied to any prior year missed RMDs before being applied to the current year RMD could produce results that are both illogical and inequitable. For example (using round numbers) assume the RMD amount is $10K in each year for 10 years. In year 1 the $10K RMD is missed. Form 5329 is filed and the $5K penalty (50%) is paid. In years 2-10 each year's $10K RMD is taken. But in year 2, if the $10K distributed is first applied to the year 1 missed RMD then there is a $10K RMD shortfall for year 2 and another $5K penalty. This would repeat for years 3-10, resulting in $50K total penalties for one missed RMD of $10K. I don't think the IRS or the courts would take this position.

[elgob]

I don't agree with the general statement that all missed RMDs are brought forward and treated as current year RMDs. If that were true then the 50% penalty for missed RMDs would apply not just to the first year the RMD was missed but every subsequent year until the missed RMD was actually distributed, similar to the 6% penalty for excess contributions. Form 5329 shows that this is not done.

I think the regulation intends to say that, when determining an eligible rollover distribution amount in an RMD year, any amounts distributed are fist applied to the current year RMD, and any additional amounts distributed must be applied to any prior year missed RMD amounts, if any, before arriving at the amount distributed that would be eligible for rollover.

Any interpretation that amounts distributed are first applied to any prior year missed RMDs before being applied to the current year RMD could produce results that are both illogical and inequitable. For example (using round numbers) assume the RMD amount is $10K in each year for 10 years. In year 1 the $10K RMD is missed. Form 5329 is filed and the $5K penalty (50%) is paid. In years 2-10 each year's $10K RMD is taken. But in year 2, if the $10K distributed is first applied to the year 1 missed RMD then there is a $10K RMD shortfall for year 2 and another $5K penalty. This would repeat for years 3-10, resulting in $50K total penalties for one missed RMD of $10K. I don't think the IRS or the courts would take this position.

Thanks Mark. So, taking that view, I think you'd say that Notice 2022-53 does give a 10-year penalty-free "pass," so to speak, on taking the 2021-22 RMDs, even though the RMDs themselves aren't actually waived, because those untaken RMDs are not rolled forward into subsequent years' RMDs for purposes of the "first-money-out" rule, and because untaken RMDs aren't re-penalized every year, just once. (Of course, this assumes IRS doesn't say something different in the final regs, but it's entirely possible that those regs will be entirely forward-looking from 2023, with complete silence on 2021-22.)