2024 Update: waiver of RMDs for inherited IRA beneficiaries - Mize CPAs Inc. (2024)

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2024 Update: waiver of RMDs for inherited IRA beneficiaries - Mize CPAs Inc.? ›

The IRS recently issued Notice 2024-35, which provides significant relief for certain beneficiaries of inherited IRAs. This notice waives the requirement for these beneficiaries to take required minimum distributions (RMDs) for 2024 if they are subject to the SECURE Act's 10-year payout rule.

If you inherited a retirement account in 2020, 2021, 2022 or 2023, you may be affected by this IRS decision. The IRS may not expect RMDs to be made from that account for tax year 2024 for a subset of IRA beneficiaries that are subject to the 10-year payout, according to Notice 2024-35.

The IRS will waive penalties for RMDs missed in 2024 from IRAs inherited in 2023, where the deceased owner was already subject to RMDs. (With previous IRS relief, penalties are waived for missed RMDs from specific IRAs inherited in 2020, 2021, 2022, and 2023.)

You'd generally have to start taking RMDs by December 31 of the year following the death of the original account owner. You would use the IRS Single Life Expectancy Table to calculate your first RMD.

The IRS on April 16, 2024, released Notice 2024-35, which extends previously issued temporary relief from certain required minimum distribution (RMD) requirements for beneficiaries under qualified defined contribution plans through Dec. 31, 2024.

Exceptions to the 10-Year Rule

Some beneficiaries of IRA accounts whose owners died in 2020 or later are exempted from the 10-year rule. This exemption applies to "eligible designated beneficiaries," who can be: A surviving spouse. A disabled or chronically ill person.

Take a lump-sum distribution

As the beneficiary, you may distribute the account assets in a lump sum without facing a 10% early withdrawal penalty. (If you inherit a Roth IRA, the account must have been open for at least five years to avoid paying a penalty.)

Once you start taking RMDs, there is no stopping age. You must continue making withdrawals each year, even if you don't need the income. If you are in a position where you have excessive extra income, you may consider making a Qualified Charitable Distribution (QCD).

A Roth IRA inherited from a spouse can be treated as the beneficiary's account. This means the new owner can take tax-free withdrawals at his or her option. If the Roth IRA came from anyone else, however, the beneficiary has to take RMDs just as if it were a traditional IRA.

How do I calculate my RMD for 2024? ›

So how do you calculate your RMD for a given year? By dividing the value of each retirement account at the end of the previous year by the distribution period based on what your age will be in the year you take the RMD.

It is calculated by dividing an account's year-end value by the estimated remaining years of your lifetime, in a table provided by the IRS. The table shown below is the Uniform Lifetime Table, the most commonly used of three life-expectancy charts that help retirement account holders figure mandatory distributions.

An inherited IRA, also known as a beneficiary IRA, is an IRA account you inherit from someone who has died. Anyone can inherit an IRA, including spouses, family members, and non-related individuals, as well as estates and trusts.

The IRS recently issued Notice 2024-35, which provides significant relief for certain beneficiaries of inherited IRAs. This notice waives the requirement for these beneficiaries to take required minimum distributions (RMDs) for 2024 if they are subject to the SECURE Act's 10-year payout rule.

The proposed RMD regulations clarify that designated beneficiaries of account owners that die on or after the RBD must take life expectancy payments for the first nine years, and a total distribution by December 31 of the year containing the 10th anniversary of the account owner's death.

Generally, a designated beneficiary is required to liquidate the account by the end of the 10th year following the year of death of the IRA owner (this is known as the 10-year rule). An RMD may be required in years 1-9 when the decedent had already begun taking RMDs.

The IRS has again waived required withdrawals for certain Americans who have inherited retirement accounts since 2020. It may not be a good thing for heirs, experts say. Before the Secure Act of 2019, heirs could “stretch” retirement account withdrawals over their lifetime, which reduced year-to-year tax liability.

What Is IRS Notice 2024-35? On April 16, 2024, the Internal Revenue Services (IRS) released Notice 2024-35, granting relief for failure to make requirement minimum distributions (RMD) from a deceased individual's Qualified Retirement Plan (QRP) accounts and inherited Individual Retirement Accounts (IRAs).

The IRA contribution limits for 2024 are $7,000 for those under age 50, and $8,000 for those age 50 or older.

Can You Convert an Inherited IRA to a Roth? Only the spouse of the deceased person is permitted to convert an inherited IRA to a Roth. Any other type of beneficiary may not convert an inherited IRA to a Roth IRA.