Under the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), non-spousal beneficiaries of IRAs inherited after 2019 had to receive the entire balance in the account within 10 years. In regulations proposed by the IRS on Feb. 24, 2022, the IRS said that a non-spousal beneficiary who inherited an IRA from someone who died before reaching the age of required minimum distributions (RMDs) would have to start taking distributions annually, presumably calculated like RMDs, to deplete the account ratably over 10 years. Before these proposed regs, many practitioners and taxpayers had read the fairly clear language of the SECURE Act to say the payments just had to be completed by the end of 10 years and had decided to defer payment until the end of the period. The proposed regs would have resulted in many taxpayers retroactively not being in compliance with a provision for 2020 and 2021 distributions, before the February 2022 regulations were proposed.
The IRS received plenty of comments, including those from TXCPA’s Federal Tax Policy Committee, asking the IRS to defer the effective date so that taxpayers would not be penalized by a retroactive requirement contrary to a reasonable interpretation of earlier guidance.
In recent Notice 2022-53, the IRS gave a status of the proposed rules, announcing that it is changing the proposal to allow payments to be made on a schedule determined by the taxpayer so long as the IRA is depleted within 10 years. The notice provides transition relief from the RMD proposed rules for qualified designated beneficiaries of decedents dying after 2019. There is no penalty for 2021 and 2022 RMD failures. The IRS announced that RMDs are not required to commence until at least 2023.
The IRS indicated: "To the extent a taxpayer did not take a specified RMD (as defined in Section IV.C of this notice), the IRS will not assert that an excise tax is due under Section 4974. If a taxpayer has already paid an excise tax for a missed RMD in 2021 that constitutes a specified RMD, that taxpayer may request a refund of that excise tax." This provides necessary relief for taxpayers with RMDs previously due under the proposed regulations for 2021 and 2022.
The IRS is still working on finalizing the proposed regulations.