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RMD Relief? No Thank You! Thumbnail

RMD Relief? No Thank You!

Required Minimum Distributions (RMDs)

The IRS unleashed massive confusion last year. To the surprise of many, it released proposed SECURE Act regulations requiring beneficiaries (on some occasions) to take required minimum distributions (RMDs) during the 10-year payout period.

required minimum distribution

IRS' Transitional Relief - Notice 2023-54

To help with the confusion, the IRS issued some transitional relief. Last year, the IRS issued Notice 2022-53, which waived penalties for missed 2021 and 2022 required minimum distributions within the 10-year period. Recently, the Service released Notice 2023-54, which extends the penalty waiver to cover missed 2023 RMDs when the death occurred in 2020 or 2021. It also excuses the penalty for missed 2023 RMDs within the 10-year period when the death took place in 2022.

At first it may seem that every beneficiary who is subject to the 10-year rule and would otherwise be required to take an required minimum distribution for 2023 should take advantage of the opportunity to skip their 2023 RMD. It may seem like a no brainer to keep the funds in the account if not needed and avoid an immediate tax bill. However, this may not actually be a smart planning move.

Why? Well, anyone who is eligible for this relief also has the 10-year deadline looming. It may be tempting to skip an  required minimum distribution for 2023, but that could mean more pain later when a potentially larger tax bill comes due at the end of the 10-year holding period. A better strategy may be to say ‘no thank you’ to the IRS RMD relief allowing you to take nothing - maybe for the third year in a row! Instead, take advantage of the waiver to do some flexible distribution planning.

Flexible Distribution Planning Example

Debra, age 75, died in 2020. The beneficiary of her traditional IRA is her adult daughter, Brittany. Brittany is a non-eligible designated beneficiary subject to the 10-year rule under the SECURE Act. The proposed regulations say that because Debra died after her RBD, Brittany must take  required minimum distribution based on her single life expectancy during years 1-9 of the 10-year period. However, Notice 2022-53 said that if Brittany failed to do so for 2021 and 2022, there is no penalty on the missed RMDs. Notice 2023-54 extends this relief to the 2023 RMD.

Because Brittany is eligible for relief from the  required minimum distributions during the 10-year period for years 2021, 2022, and 2023, she could take nothing in 2023 for a third year in a row. However, she may want to consider taking distributions anyway to minimize the tax hit in future years. Despite Notices 2022-53 and 2023-54, drawing down the inherited IRA throughout the 10-year period while being cognizant of current tax brackets could be a wise tax planning strategy.

By Sarah Brenner, JD
Director of Retirement Education
Ed Slott and Company, LLC

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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.

Copyright © 2023, Ed Slott and Company, LLC Reprinted from The Slott Report, 08/14/23, with permission. https://www.irahelp.com/slottreport/rmd-relief-no-thank-you, Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article. 
Investment advisory services offered through Mutual Advisors, LLC DBA California Retirement Advisors, a SEC registered investment adviser. Securities offered through Mutual Securities, Inc., member FINRA/SIPC. Mutual Securities, Inc. and Mutual Advisors, LLC are affiliated companies. CA Insurance license #0B09076. This content is developed from sources believed to be providing accurate information and provided by California Retirement Advisors. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. California Retirement Advisors, nor any of its members, are tax accountants or legal attorneys and do not provide tax or legal advice. For tax or legal advice, you should consult your tax or legal professional.