Unexpected interpretation of the SECURE Act 10-year inherited IRA drawdown

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GerryL
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Unexpected interpretation of the SECURE Act 10-year inherited IRA drawdown

Post by GerryL »

Saw this today in Investment News and figured it would be of interest to many people here.
In late March, IRS released IRS Publication 590-B, which contains the tax rules on withdrawing funds from individual retirement accounts. Normally this is a wrap-up of rules to use as guidance in preparing tax returns. But not this time. In this new 2021 version, updated on March 25, the IRS included explained how the SECURE Act rules would work for post-death distributions to IRA beneficiaries — and the rules are not what anyone thought they would be.
...
Pages 11 and 12 provide an explanation and an example showing that beneficiaries would be subject to RMDs each year (as under the pre-SECURE Act rules) for years one through nine, and then the balance must be withdrawn in year 10. No one saw that coming! This doesn’t go along with the SECURE Act rules and committee reports, which seemed to indicate that the new 10-year rule would work like the old pre-SECURE Act five-year rule, with no annual distributions required.
https://www.investmentnews.com/irs-secu ... ght-205141
Silk McCue
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Re: Unexpected interpretation of the SECURE Act 10-year inherited IRA drawdown

Post by Silk McCue »

Now that's a bombshell of an interpretation. The best laid plans of mice and men just took a hit for many.

Thanks for sharing.

Cheers
Fired2020
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Re: Unexpected interpretation of the SECURE Act 10-year inherited IRA drawdown

Post by Fired2020 »

I inherited an IRA late last year, and took no distribution. So under this interpretation...I guess I'd be subject to an IRS penalty already??

WTH :oops:
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AllMostThere
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Re: Unexpected interpretation of the SECURE Act 10-year inherited IRA drawdown

Post by AllMostThere »

Yes, this is a shocker and not at all as expected. Per the article, it sounds like this is not yet in stone. I will be watching this whole process moving forward with hope it actually is ruled by IRS as thought - i.e. flexibility in years 1 - 9, with all out by year 10.
That said, I would urge all beneficiaries subject to the 10-year rule to hold off on taking any RMDs this year until we are sure of the rules.

IRS has not yet released official regulations. Plus there will be a comment period, and this could all change. So wait until we have this 10-year rule issue resolved with certainty. In other words — stay tuned. We have not heard the last on this.
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retiringwhen
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Re: Unexpected interpretation of the SECURE Act 10-year inherited IRA drawdown

Post by retiringwhen »

Wow, that stinks if it holds to be true. Ed is pretty clear in the article that this guidance is not official rules and we are still waiting for the official regulations. So, don't take action on anything yet, but keep your ears open for the official regulations!

BTW, this is a perfect example of making the regulations even more complex for little or no benefit to anyone! It will hardly put anymore money in the gov't coffers, makes a beneficiary's planning more complex, but will surely cause people to pay for more time with tax preparers and estate planners! (I guess they win, sigh).
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celia
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Re: Unexpected interpretation of the SECURE Act 10-year inherited IRA drawdown

Post by celia »

Fired2020 wrote: Tue Apr 13, 2021 7:09 am I inherited an IRA late last year, and took no distribution. So under this interpretation...I guess I'd be subject to an IRS penalty already??

WTH :oops:
No penalty for you since RMDs were $0 in 2020, due to covid. Sorry. :D But I can't see how you can have a penalty in the case of someone dying in the last week of the year.

Ed Slott from the referenced article wrote: But under this new IRS interpretation requiring RMDs in years one through nine, who would ever want to elect the 10-year rule? No one. Not if RMDs are required each year (for years one through nine) anyway.
I disagree. Almost EVERYONE would want to split up their withdrawals about equally each year to avoid a spike in taxes (and tax bracket) in the last year. In other words, they likely would want to take more the the minimum required, at least for a tax-deferred IRA.
A dollar in Roth is worth more than a dollar in a taxable account. A dollar in taxable is worth more than a dollar in a tax-deferred account.
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Kenkat
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Re: Unexpected interpretation of the SECURE Act 10-year inherited IRA drawdown

Post by Kenkat »

Fired2020 wrote: Tue Apr 13, 2021 7:09 am I inherited an IRA late last year, and took no distribution. So under this interpretation...I guess I'd be subject to an IRS penalty already??

WTH :oops:
Luckily the CARES Act waived the RMD requirement for 2020 so there will be time to get this sorted out.
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oldcomputerguy
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Re: Unexpected interpretation of the SECURE Act 10-year inherited IRA drawdown

Post by oldcomputerguy »

From the linked article:
IRS has not yet released official regulations. Plus there will be a comment period, and this could all change. So wait until we have this 10-year rule issue resolved with certainty. In other words — stay tuned. We have not heard the last on this.
That being the case, discussion of this is premature here under forum policy and so the topic has been locked. See Politics and Religion:
Proposed regulations that are directly related to investing may be discussed if and when they are published for public comments.
When the IRS releases proposed regulations for public comments, the discussion can be unlocked to continue.
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Re: Unexpected interpretation of the SECURE Act 10-year inherited IRA drawdown

Post by LadyGeek »

Upon further review, this thread will remain locked. Although Publication 590-B is a current IRS document, the intent of this discussion concerns possible revision of IRS regulations. We will unlock the thread when the regulations are published for public comment.

Some background information:

- IRS publications are based in US law. See the wiki: Hierarchy of tax authority
- The agency regulation update process. From: Re: Political comments and proposed tax plan remain off-topic
LadyGeek wrote: Fri Nov 03, 2017 8:46 pm I should also explain the difference between legislation and regulations. Legislation is US law. After Congressional bills become laws, Federal agencies are responsible for putting those laws into action through regulations. This process may include the following steps:*
  1. An agency initiates a rulemaking activity, and adds an entry to its Regulatory Agenda
  2. A Proposed Rule or other document is published to Regulations.gov
  3. The public is given the opportunity to comment on this rule for a specified timeframe
  4. Final Rules can be accessed on Regulations.gov
Therefore, "regulations" are rules imposed by the departments and agencies of the Federal Government. The Internal Revenue Service is a federal agency under the U.S. Treasury Department (also a Federal agency).**

We permit discussions regarding "proposed regulation" when they are published for public comment. Here's an example: Fiduciary Standard - Now open for public comments, federalregister.gov.

If there are any questions, please feel free to PM me or a moderator. Don't start a new discussion.

* Source: Frequently Asked Questions, regulations.gov.
** Source: Internal Revenue Service , federalregister.gov.
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