RMD Rules for IRAs Inherited After 2019: What You Need to Know

Patrick Horning is an advanced planning attorney at Northwestern Mutual.

If you inherited an IRA from an IRA owner who died after 2019, proposed IRS SECURE Act regulations published in February created uncertainty and confusion around whether you would need to take a required minimum distribution (RMD) this year. Thankfully, new IRS guidance from October eliminates this confusion and offers taxpayer relief.

Here, we’ll discuss the SECURE Act’s provision regarding inherited IRA RMDs, what the proposed IRS regulations from February require, the latest IRS guidance and relief and how all this impacts you.

The SECURE Act

The SECURE Act shortened the distribution time frame for most IRAs inherited after 2019 to just 10 years. Prior to the SECURE Act, if you inherited an IRA, you had the ability to stretch RMDs over your lifetime, with the objective of depleting your account by the end of your life. But under current law, if the person you inherited the IRA from died after 2019, the inherited IRA must generally be completely distributed within 10 years of the IRA owner’s death.

While this change sounds straightforward, there has been significant confusion regarding the application of this law following proposed regulations published by the IRS in February.

Proposed IRS SECURE Act Regulations

Many tax professionals interpreted the inherited IRA provision of the SECURE Act as not requiring annual RMDs in the nine years following the original account owner’s death. Instead, the law was commonly interpreted as requiring only that the account be emptied by December 31 of the tenth year.

As is customary following the passage of a new tax law, the IRS issued proposed regulations in February. Proposed regulations aim to help taxpayers and tax professionals comply with legislation. Although they do not carry the force of law and may not even go on to become final regulations, the interim guidance proposed regulations offer is usually helpful.

While the proposed regulations did clear up confusion on several issues from the SECURE Act, one provision surprised many tax professionals. For most IRA beneficiaries, the proposed regulations would impose different distribution requirements depending on whether the original IRA owner died before or after his or her required beginning date (RBD) for distributions.

The original IRA owner’s RBD is generally April 1 of the year following the year he or she turned 72. The proposed regulations state that if the original IRA owner died in 2020 or later, and on or after his or her RBD, a “designated beneficiary” must take RMDs in years one through nine as well as emptying the IRA by the end of year 10. Different rules apply if the beneficiary is chronically ill, disabled, less than 10 years younger than the IRA owner, the minor child of the IRA owner, or the surviving spouse of the IRA owner.

So, if you inherited an IRA after 2019, here’s what proposed regulations say most beneficiaries can expect based on whether the original owner died before or after his or her RBD:

Up until October, it was believed that these proposed regulations would apply for the purposes of determining 2022 (and even some 2021) RMDs for the beneficiaries of IRA owners who died in 2020 or 2021.

Latest IRS Guidance and Taxpayer Relief

In response to these proposed regulations, many tax professionals submitted comment letters to the IRS asking that the proposal to require annual RMDs in the first nine years be withdrawn completely. Some also asked that, if the IRS includes the annual inherited IRA RMDs as a part of the final regulations, taxpayers be offered relief for the years prior to the regulations becoming final (i.e., 2021 and 2022).

Perhaps recognizing the inherent unfairness in applying the proposed regulations to 2021 and 2022, the IRS issued a notice in October stating that the proposed regulations will not apply to tax years prior to 2023. The notice also indicated that if a 2021 or 2022 inherited IRA RMD is not taken by a designated beneficiary, this is not deemed to be a failure to take an RMD, and no penalty will be assessed. If a designated beneficiary already paid a penalty for failure to take a 2021 inherited IRA RMD, that designated beneficiary can request a refund of the penalty.

Notably, left unanswered was the question of whether the IRS will withdraw the proposal to require annual RMDs for some taxpayers in the first nine years. That determination will come at a future date. It also did not provide transitional relief for taxpayers who already took a 2022 RMD based on the proposed regulations. Because inherited IRAs do not have a statutory 60-day rollover option, if you take the money out of the inherited IRA, you will be taxed.

The Practical Impact

If you are the designated beneficiary of an inherited IRA in which the IRA owner died (1) in 2020 or 2021 and (2) on or after the owner’s RBD, no 2022 inherited IRA RMD is necessary. Unfortunately, if you have already taken a 2022 RMD and would have preferred not to, that distribution cannot be placed back into the inherited IRA.

One final note: If the IRA owner died in 2022 after the owner’s RBD, the deceased IRA owner’s 2022 RMD still must be taken in 2022.

If you have questions about RMDs for your inherited IRA, connect with your financial advisor before year-end to make an informed decision that best aligns with your financial plan.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP^®, CERTIFIED FINANCIAL PLANNER™ and CFP^® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

This article is not intended as legal or tax advice. Northwestern Mutual and its financial representatives do not give legal or tax advice. Taxpayers should