Important Update: Inherited IRAs (Again)
In our June newsletter, we informed you about the IRS Notice 2024-35, which announced the waiver of Required Minimum Distributions (RMDs) for non-spouse inherited IRA beneficiaries under the 10-year rule for 2024. This waiver marked the fourth consecutive year of such relief, following the changes under the Secure Act passed in 2019.
However, the IRS has finally provided the clarification we have been asking for since 2019!
What Does This Mean for You?
If you are an owner of an IRA, inherited from a non-spouse (i.e. mom/dad) after January 1st, 2020, you will be required to start taking IRS mandated distributions from your account starting January 2025.
Final Year of RMD Waiver
The IRS’s decision to end the waiver after 2024 means that starting January 2025, beneficiaries must begin taking RMDs based on what the IRS deems the “At Least as Rapidly Rule”. For example, if mom was actively taking RMDs from her IRA, while she was alive, then her son, once inherited, will need to continue taking those RMDs based on his IRS life expectancy table.
This gives you one last year of flexibility in managing your inherited IRA distributions without the mandate of an RMD.
10-Year Rule Compliance
Do remember, that the 10-year rule which dictates that an inherited IRA must be fully liquidated by the end of the 10th year following the year of the original owner’s death, remains unchanged. As a result, for those who have been taking advantage of the last 4 years’ worth of RMD waivers the remaining number of years to liquidate the account will remain unchanged.
Strategic Withdrawals
Although the waiver provides temporary relief, you should still consider making withdrawals in 2024. Doing so can help manage your tax liabilities more efficiently, especially with the potential changes in tax brackets when the Tax Cuts & Jobs Act (TCJA) provisions expire in 2026 — as discussed above.
With RMDs resuming in 2025, it’s essential to develop a withdrawal strategy that aligns with your long-term financial goals. Planning ahead can help you mitigate future tax burdens and ensure you meet the requirements without compromising your financial stability.
Feel free to reach out with any questions or to discuss how this new IRS update might impact your specific situation.
Advisors Capital Management, LLC is an investment advisor registered with the United States Securities and Exchange Commission. Registration does not imply any degree of skill or training. All investing carries risk, including the potential for the loss of principal and past performance is no guarantee of future results. This content is for informational purposes only, can change at any time without notice, and is not investment advice or a recommendation to trade any security. Indices are not available for direct investment. We only provide services in jurisdictions where we are registered. Our disclosure brochure (ADV Part 2A) and customer relationship summary (ADV Part 3) are available at https://adviserinfo.sec.gov and upon request.
