That potential liability was described in our July 26, 2022, article, “


New IRS Rules and Actuarial Tables Impact RMDs for 2021 and Beyond.


” Our article discussed how a then-required distribution for 2021 could have been missed by a beneficiary of an inherited IRA or inherited “individual account plan”


[2]



whose original owner died on or after January 1, 2020.


While the IRS’s reversal on this issue is an obvious benefit for affected beneficiaries who



did not



make an RMD for 2021 or 2022, it also impacts those who



did:

  • First, if you have already withdrawn an RMD for 2021 or 2022, you must still include the amount in your taxable income for the year received, and it cannot be transferred back to the IRA.

  • Second, if you paid a 50% excise tax on the “late” 2021 RMD, you may request a refund of the excise tax.



Background



. As our



July article



described in some detail, under regulations proposed by the IRS in February 2022, if the deceased IRA owner had already attained his or her required beginning date (RBD) before dying, the beneficiary of the inherited IRA would have been required to commence receiving RMDs in the calendar year following the IRA owner’s death, based on the beneficiary’s life expectancy. The RMDs must continue for calendar years 1-9 and then the entire IRA must be withdrawn no later than December 31 of the 10th calendar year following the IRA owner’s death.



[3]

The IRS’s requirement to take RMDs in years 1-9 caught just about everyone by surprise. What made matters worse is that the IRS did not issue its proposed regulations until February 2022, which meant that beneficiaries who should have taken distributions in 2021 were now late and potentially subject to a 50% excise tax on the 2021 RMD for failing to have timely withdrawn the RMD from the inherited IRA by December 31, 2021.

Please note that the RMD waivers apply only to 2021 and 2022. Unless the IRS grants further waivers or Congress changes the rules as interpreted by the IRS, RMDs must commence in 2023, based on the beneficiary’s life expectancy, in the year following the IRA account holder’s death, less one for each ensuing year. Also, the requirement that all funds must be withdrawn from the inherited IRA by December 31 of the 10th calendar year following the IRA account holder’s death still applies.

If you have any questions concerning the RMD waivers or your liability for RMDs in subsequent years, please contact Chuck Whetstine or your Frazer Ryan attorney (602-277-2010).

 


1



An individual reaches his or her required beginning date depending on when the individual was born. If born prior to July 1, 1949, the individual reaches his or her RBD if alive on the April 1 following the calendar year in which the individual attained age 70½. If born on or after July 1, 1949, the individual reaches his or her RBD if alive on the April 1 following the calendar year in which the individual attained age 72.

 


2



An individual account plan is, generally, a 401(k), profit sharing, 403(b) or 457(b) plan. Defined benefit pension plans are not subject to these new rules. In most instances, a beneficiary of an individual account plan will directly transfer the benefits in one of those plans to an “inherited IRA.” Accordingly, throughout this article, reference will be made only to RMDs from an IRA.

 


3



As noted in our



July 2022 article


, different rules apply to a surviving spouse and certain “eligible designated beneficiaries.” You should review the original article which describes the different rules for these types of beneficiaries.