IRS delays guidelines, waiving penalties for some inherited retirement accounts until 2023
If you inherited a retirement account in 2020 or 2021, the IRS is waiving penalties for some heirs who needed to start taking required minimum distributions right away, according to a notice issued Friday.
The new rule won’t apply until 2023.
Typically, there’s a 50% penalty when you skip RMDs or don’t take the full amount by the deadline, applying to the balance that should have been withdrawn.
Thanks to the Secure Act of 2019, certain heirs, known as “non-eligible designated beneficiaries,” have to deplete inherited retirement accounts within 10 years, known as the “10-year-rule.”
More from Personal Finance:
Here’s how to pay 0% capital gains taxes with a six-figure income
How Congress may renew monthly child tax credit checks
Long-term unemployment dips by another 70,000 people
Non-eligible designated beneficiaries are heirs who aren’t a spouse, minor child, disabled, chronically ill or certain trusts. The 10-year rule applies to accounts inherited on Jan. 1, 2020, or later.
However, there’s an even shorter timeline if the original owner already reached their “required beginning date” when their own RMDs needed to begin. In that case, heirs were expected to start taking RMDs immediately.
Owners of inherited IRAs and retirement plan beneficiaries have expressed confusion about the timeline for required RMDs, and asked for “transition relief” for missed 2021 and 2022 RMDs, according to the notice.
As a result, taxpayers who skipped RMDs from inherited retirement accounts won’t owe a penalty for 2021 or 2022, the IRS says.
If you already paid the penalty for 2021, you can “request a refund of that excise tax,” the notice says.
These guidelines don’t apply to regular RMDs, eligible designated beneficiaries or heirs who inherited retirement accounts before 2020.
- The Benefits of Meal Prepping for Busy Moms - October 28, 2023
- The 11 Best Cash ETFs in Canada (Plus HISA ETFs and Money Market ETFs) - October 8, 2023
- Build a Variety of Outfits with These 7 Affordable Pieces - October 7, 2023