IRS Finalizes 10-Year Rule For Retirement Withdrawals, Making Things 'Even More Insanely Complicated'

The Internal Revenue Service and Treasury Department have released final regulations updating required minimum distribution (RMD) rules for beneficiaries under the 10-year rule.

These regulations, stemming from the SECURE and SECURE 2.0 Acts, confirm that most IRA beneficiaries must take distributions annually over the 10-year period following the account holder’s death, according to thinkadvisor.

Key points from the final regulations include:

1. Non-eligible designated beneficiaries subject to the 10-year rule must take RMDs each year.
2. Beneficiaries of individuals who started required annual distributions must continue these distributions, even if the account balance is fully distributed within 10 years.

Ben Henry-Moreland, senior financial planning nerd at Kitces.com, notes that while these rules aren’t game-changing for planning, they make retirement accounts “even more insanely complicated.” For instance, spousal beneficiaries now have three different options for treating their deceased spouse’s retirement account, each with its own RMD calculation.

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Jeff Levine, lead financial planning nerd at Kitces.com, highlights that annual distributions during the 10-year rule are required if death occurred on or after the required beginning date (RBD). However, due to previous IRS notices, this rule won’t apply until 2025.

The IRS and Treasury also issued proposed regulations addressing additional RMD issues under the SECURE 2.0 Act. They are soliciting public comments on these proposed rules, which cover other changes related to RMDs.

Experts note that while these regulations clarify many issues, they also add complexity to retirement account management. Advisors will need to stay informed about these intricate rules to provide valuable guidance to clients navigating retirement planning and inherited accounts.

The financial planning community is now anticipating further guidance on other SECURE 2.0 provisions, such as rollovers of unused 529 plan funds to Roth IRAs.

These new regulations underscore the evolving landscape of retirement planning and the increasing importance of specialized knowledge in navigating complex tax rules for retirement accounts.

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