Confusion and Relief with RMDs

July 27, 2023

Q: A few years ago, I inherited an IRA from my deceased father. My accountant told me that I was subject to something called “the 10-year rule,” meaning I would need to deplete all the assets in the IRA within 10 years of my father’s death. He didn’t say anything about annual required minimum distributions, but I recently heard that I should be taking them. I know the rules for inherited IRAs have recently changed, but I feel like I am getting mixed signals on this. Can you help clarify the rules for RMDs for me?

A: In the past three years, Congress has hit us with two new laws that directly affect qualified retirement plans, including IRAs: the SECURE Act of 2019 and the SECURE 2.0 Act of 2022. These laws brought significant changes to how retirement accounts are handled and have caused tremendous confusion among some investors, accountants, plan administrators and financial advisors. To give you a sense of how crazy it is, here is one of the simpler changes that were made and then modified.

Under the SECURE Act, the RMD age was changed from 70 ½ to 72. With the SECURE 2.0 Act, you must begin taking RMDs no later than April 1 of the year following the year you turn 73 if your birth year was 1951 to 1959, inclusive, and April 1 of the year following the year you turn 75 if you were born in 1960 or later. I don’t pretend to understand the logic behind the way this rule is written, but I have to ask: Is this really the best way to “set every community up for a more secure retirement”—the ostensible purpose of both SECURE Acts?

The confusion deepens when it comes to inherited IRAs. Before the SECURE Act, the beneficiary of an inherited IRA could spread withdrawals from an inherited IRA over his or her remaining life expectancy. Under the new rules, everything needs to be withdrawn before the end of the tenth year following the death of the original IRA owner, unless the beneficiary is what is called an “eligible designated beneficiary.” Eligible designated beneficiaries include surviving spouses, disabled or chronically ill individuals, individuals who are not more than 10 years younger than the IRA owner, or minor children of the decedent. All other beneficiaries are referred to simply as “designated beneficiaries.”

Since you most likely do not qualify as an eligible designated beneficiary, SECURE 2.0 says that you are subject to the 10-year rule. In addition, if the decedent (your father) was already taking RMDs at the time of his passing, you must also to take annual RMDs from your inherited IRA. Failure to take RMDs could result in excise taxes levied on any missed distributions.

Under the original SECURE Act, the excise tax for missed RMDs was set at 50% of any shortfall. SECURE Act 2.0 reduced the excise tax to 25% beginning January 1, 2023. In addition, you could also be required to pay interest on unremitted RMDs. However, if the RMD is corrected in a timely manner, the penalty could be reduced to 10%.

Fortunately, the IRS has made some accommodations to help confused tax-payers avoid unjust RMD-related penalties. First, 72-year-olds who did not know that the RMD age had been raised to 73 and mistakenly took a distribution early this year have the option to return (roll over) the accidental RMD to their IRA. If this applies to you, you have until September 30, 2023 to return the funds to your IRA, even if the normal 60-day rollover period has passed.

Second, for those who inherited IRAs after 2019, the IRS has waived any penalties for missed RMDs for tax years 2020, 2021, 2022, and 2023. And according to IRA expert Ed Slott, those RMDs are effectively cancelled permanently. It is very doubtful the IRS would require investors to go back and pay those RMDs in arrears.

Please see important disclosure information here.

Steven C. Merrell  MBA, CFP®, AIF® is a Partner at Monterey Private Wealth, Inc., an independent wealth management firm in Monterey.   He welcomes questions you may have concerning investments, taxes, retirement, or estate planning.  Send your questions to: Steve Merrell, 2340 Garden Road Suite 202, Monterey, CA  93940 or email them to