Inherited IRA Distribution Relief

[Lee B]

There was a thread about this recently but I couldn't find it so I started a new thread

"Recent heirs to retirement plans got an unexpected boost when the Internal Revenue Service suggested that they could skip making required withdrawals for this year and last, a reprieve that eliminates one-time tax hits and leaves more money in a nest egg to grow.

The tax agency surprised wealth advisors late last Friday when it announced that people wouldn't face an onerous 50% penalty for not taking minimum distributions from inherited plans, such as individual retirement accounts, for 2022 and 2021. Though the IRS didn't spell things out directly and said final rules would come next year, the announcement appears to mean that heirs are permanently off the hook for withdrawals for those two years.

"The IRS is now saying there will be no 50% penalty for not taking those RMDs, which to me appears to mean that these RMDs do not have to be taken (even though the IRS did not specifically state that in the notice)," said Ed Slott, a certified public accountant and retirement expert in Rockville Centre, New York."

[BulldogTom]

I read that as well, and my take was the same.   8 RMDs over the remaining 8 years of the withdrawal period and all of it withdrawn by the end of the 10 years.  I think the IRS is not going to write a reg with a retro-active penalty.  However, it does appear that the IRS is standing firm on its change to the regs requiring RMDs over the 10 year period (with the 2 years forgiven per the above).   The IRS regs for the 5 year law did not require RMDs, just full withdrawal by the end of the 5 year period.  When Congress changed the law from a 5 year withdrawal period to a 10 year withdrawal period, the IRS decided that was too long to wait for the tax and started looking at this new reg to require the RMDs.   

I am still unclear if the reg depends on if the decedent had began their RMDs or not.   Anyone have clarification on that?  I am pretty sure that if the decedent had begun RMDs, they need to continue, but I am not sure if the reg is applicable if the decedent had not begun their RMDs.   I am still unclear about the table to use for calculating the RMD, the decedent's age or the beneficiary's age?

Tom
Longview, TX

[BulldogTom]

I have a client who passed last year.   Age 97, definitely taking RMDs.   No issues there.   Final return includes the 2022 RMD.  

The Trust is named as the beneficiary of the IRA.

In discussing the trust with the Trustee, I mentioned that they will need to take RMDs each year and totally distribute the balance of the IRA in 10 years.   Trustee calls me back and says the broker indicated that Putnam (IRA company) will not calculate the RMDs to the trust, that they feel the regs say they only have to distribute the entire amount by the end of 10 years.   I call the broker and he confirms that is Putnam's position and they are not going to change it.  None of the beneficiaries want the extra taxable income at this point in their lives.

My reading of the situation is that the proposed regulations need to be followed, and since the trust appears to qualify as a "see through" trust, the trust is a "designated beneficiary".   The 3 beneficiaries of the trust are all identifiable persons (decedent's children), none of which qualify as an "Eligible Designated Beneficiary". 

I can calculate how much of a distribution to take to meet the RMD requirement, but I really don't want to take on that liability.  

Am I reading this right?   I have gone through all the materials I have, mostly from Spidell (my go-to CPE provider).  Have I missed anything?

Thanks in advance.

Tom
Longview, TX

[Lee B]

Until we receive clearer updated guidance all you can do is advise your clients that you and Putnam have interpreted the requirements differently

and let them decide what to do. Perhaps you could put that in writing and get your clients acknowledgement that you have informed them.