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Navigating Inherited IRA RMDs (Required Minimum Distributions) – IRS Waives RMDs in 2024 for IRA Beneficiaries Subject to the 10-Year Rule

As a valued client of Capital Advantage, we understand that staying informed and proactive in managing your investments, including Required Minimum Distributions (RMDs), is crucial.

With recent updates from the IRS, there are key developments that could impact your financial strategy, particularly if you are an IRA beneficiary subject to the 10-year rule (which requires all funds of an inherited IRA to be withdrawn within 10 years of the previous owner’s passing).

IRS Waives RMDs in 2024 for IRA Beneficiaries Subject to the 10-Year Rule

The IRS has once again waived RMDs for beneficiaries of Individual Retirement Accounts (IRAs) who are subject to the SECURE Act’s 10-year payout rule. This marks the fourth consecutive year of such relief. This waiver (Notice 2024-35) builds on previous IRS relief, meaning that non-eligible designated beneficiaries (NEDBs) of IRA owners who passed away in 2020, 2021, 2022, and 2023 after reaching their required beginning date will not face penalties for missing RMDs in 2024.

Who Does Not Get RMD Relief

  • Notice 2024-35 does not affect lifetime RMDs. The RMD relief is only for IRA beneficiaries.
  • The IRS reprieve also does not apply to RMDs for beneficiaries who inherited IRAs before 2020.
  • Eligible Designated Beneficiaries (EDBs) do not qualify for RMD relief since they are not subject to the 10-year rule. EDBs include:
    • Surviving spouses
    • Minor children of the account owner, until age 21 — but not grandchildren
    • Disabled individuals — under the strict IRS rules
    • Chronically ill individuals
    • Individuals older than, or not more than 10 years younger than, the IRA owner

Long-Term Tax Planning

Despite the waiver, we advise considering the long-term implications of deferring RMDs. With potential changes in tax rates on the horizon—rates are expected to increase post-2025—it may be advantageous to continue withdrawals during periods of lower taxation. This proactive approach can help manage future tax liabilities effectively, particularly towards the end of the 10-year period when the accumulated distributions could result in a higher tax bracket.

Keeping Our Clients Informed

As your financial advisors, we help to keep you updated and prepared for these types of changes, so that your retirement planning remains aligned with the latest regulatory landscapes.

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The Author: Capital Advantage, Inc.

Capital Advantage’s editorial team is dedicated to providing our clients with relevant and timely insight into key financial planning topics.