IRS Issues Final SECURE Act Regulations: Controversial Annual RMD Requirement During 10-Year Rule Stands
IRS Final RMD Regulations: What You Need to Know
The IRS released final required minimum distribution (RMD) regulations on July 18, 2024, under the 2020 SECURE Act. These regulations refine rules for trust beneficiaries and RMD aggregation while eliminating some spouse beneficiary requirements. Despite the 260-page update, most of the 2022 proposed regulations remain unchanged, including one widely debated provision.
Key Changes in the New Regulations
- The IRS confirms that some beneficiaries must take annual RMDs during the SECURE Act’s 10-year payout period.
- Documentation requirements for certain IRA beneficiaries have been removed.
- Spousal beneficiary rules have been simplified.
SECURE Act and Its Impact on RMDs
The SECURE Act, passed in 2020, significantly changed how nonspouse beneficiaries handle inherited retirement accounts. Before the law, they could spread distributions over their lifetime. Now, they must follow a 10-year payout rule. If the original account holder had already started taking RMDs, the beneficiary must continue these withdrawals annually within the 10-year period.
Understanding the "At Least As Rapidly Rule"
The IRS interprets the tax code's "at least as rapidly rule" to mean that RMDs must continue once started. Many expected this rule to disappear with the SECURE Act, but the IRS maintained its stance. To reduce confusion, the IRS waived RMDs for beneficiaries in 2021, 2022, 2023, and 2024. However, the new regulations mandate annual RMDs starting in 2025.
Final Regulations and Their Implications
From 2025 onward, beneficiaries must take annual RMDs. However, the IRS will not penalize those who missed RMDs before 2025. Understanding these changes is crucial for financial planning and tax compliance.
Example Scenario: Karen’s RMD Responsibilities
Karen inherited a traditional IRA from her mother, Linda, who passed away in 2020 at age 85. Under the SECURE Act, Karen follows the 10-year rule, meaning she must withdraw the full IRA balance by December 31, 2030. The final IRS regulations require her to take annual RMDs in years one through nine of the payout period. Since the IRS waived penalties for missed RMDs in 2021-2024, she does not need to make up for those years. However, starting in 2025, she must take an annual RMD through 2029.
Frequently Asked Questions
What are the new IRS final RMD regulations?
The IRS finalized RMD rules on July 18, 2024, refining trust beneficiary rules and simplifying spousal beneficiary requirements.
How does the SECURE Act affect RMDs?
Non-spouse beneficiaries must now withdraw the full account balance within 10 years instead of over their lifetime.
What is the "at least as rapidly rule"?
If the original account owner had started RMDs, beneficiaries must continue annual withdrawals during the 10-year period.
When do annual RMDs become mandatory?
Starting in 2025, beneficiaries must take annual RMDs, but missed RMDs before 2025 will not be penalized.
Were RMDs waived under the new regulations?
Yes, the IRS waived RMDs for 2021, 2022, 2023, and 2024 to ease the transition.
What happens if a beneficiary fails to take RMDs?
Beginning in 2025, failing to take RMDs could result in tax penalties, so compliance is essential.
How do the new regulations affect spousal beneficiaries?
The IRS simplified spousal beneficiary rules, reducing documentation requirements and clarifying distribution options.
What should beneficiaries do to comply with the new rules?
Beneficiaries should review their RMD obligations for 2025 and consult a financial advisor for tax-efficient withdrawal planning.
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Christian Cordoba, founder of California Retirement Advisors, has been a member of Ed Slott's Master Elite IRA Advisor Group since 2007.