IRS Says its IRA Publication Sets a Bad Example for Inherited IRAs (UPDATED)

April 29, 2021

The original post below has been overtaken by events. The IRS issued proposed regulations saying that annual distributions are required for inherited accounts under the 10-year distribution rule. The IRS has waived penalties for 2021 and 2022 in Notice 2022-53More details may be found here. The original post follows.

The SECURE Act passed at the end of 2019 made big changes to the rules for inherited Individual Retirement Accounts – so big that even the IRS got a little mixed-up.

When the IRS updated a publication on IRA distributions for 2020, advisors noticed that some guidance didn’t square with the SECURE Act. The new law provides that retirement accounts inherited by most beneficiaries other than spouses have to be distributed within 10 years – but not necessarily before then. The publication had examples that indicated the distributions needed to be made at least annually over the 10 years.

An IRS spokesman says the examples in the publication are wrong, reports Marketwatch. The IRS intends to revise the publication to reflect the correct information which is that beneficiaries who are subject to the 10-year distribution requirement have discretion over when to take distributions during the 10-year window. The rules simply require that all funds be distributed by the end of the 10th year after death of the original account owner.

For more details on the SECURE Act changes: How the SECURE Act will Affect Your Retirement Plan Right Now

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