Many legal experts who analyzed the SECURE Act assumed the new 10-year rule would work like the existing 5-year rule for IRAs whose owners died prior to 72 and that had no designated beneficiary: although all funds had to be depleted within that time frame, no annual RMDs were required. The publication of IRS 590-B on March 21, 2021 (see pages 11-12), suggests the assumption was wrong and that the Internal Revenue Service requires RMDs.
590-B appears to suggest that not only would non-spouse beneficiaries of IRAs have to empty the entire account within ten years, but they also might be required to take annual required minimum distributions in years 1-9. Those withdrawals would be based on the beneficiary’s own age and life expectancy.
The tax implications are significant. Beneficiaries of traditional IRAs would have to pay taxes on their withdrawals, based on their tax bracket. Beneficiaries of Roth IRAs would lose the opportunity for the entire amount to grow tax-free before withdrawing it all at the end of the ten-year period. This, of course, is the federal government's intention; the SECURE Act removes the tax benefits of stretch IRAs and ensures the government a meaningful opportunity to collect taxes as soon as possible.
The IRS rule has not been finalized, and is now open for public comment. Non-spouse IRA beneficiaries should be aware that depending on what happens, they may have to take a withdrawal this year.
RMD's for 2020 were waived, by the way, due to COVID-19.
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