Has anyone reviewed the newly released 2020 IRS Publication 590b? There a lot of discrepancies and contradictions between the SECURE Act provisions and the examples of payouts discussed in the publication – most specifically regarding beneficiary payouts beginning in 2020.
Upon a quick review of the version of Pub 590-B created on 3/25/2021 and published on the IRS website on 3/29/2021, I’m not finding any examples that have discrepancies or contradictions with regard to beneficiaries. Can you be more specific?
Maybe I have been re-reading this too much. On the top of page 12 it says non-eligible designated beneficiaries default to the 10-year payout. The example below says an owner died in 2020 and his 53 year old daughter has to start single life expectancy payout the year after the owner’s death (2021). Don’t they have optional distributions for the first 9 years and then closed by 12/31 of the 10th year after the owner’s death? That whole first paragraph is confusing to me. Thanks for your help.
I think that rather than rewrite some of the existing examples, the added discussion of the 10-year rule was intended to override the discussions of life-expectancy payouts where applicable. There can still be situations where the beneficiary described in the example can be an EDB, such as a disabled beneficiary, but you are correct, in most cases that example would not apply. The example is in the section for “Figuring the Beneficiary’s Required Minimum Distribution” and such figuring would be unnecessary for a non-EDB, so it would be appropriate for the non-EDB to ignore that entire section.
You are correct. They repeated this paragraph from the prior 590 B edition instead of editing it to reflect the 10 year rule. The entire paragraph preceding this example should also have been edited properly. Actually, this entire section badly needs a flow chart.
It’s a good thing most IRA clients don’t read the IRS Publications. My concern is that professionals who do not ‘eat, breathe and sleep’ IRAs like we do will be giving their clients incorrect information based on the Pub 590b. I agree the IRS will definitely need to revise this and not mix the old rules with the new rules.
I am starting to see some surprises in the 590 B. For example, the IRS is stating that an EDB can opt out of LE RMDs into the 10 year rule IF the plan owner passed prior to RBD, but not if the plan owner passed after the RBD. It also appears that if such EDB opted into the 10 year rule, when the EDB passes their successor beneficiary would get a new 10 year rule. That means potentially a 10 year rule stacked on top of a prior 10 year rule. Not sure if this is what the IRS intends, since that scenario never applied to the 5 year rule in the past.
Perhaps an EDB ceases to be a EDB if they opt out of LE RMDs and into the 10-year rule, requiring a successor beneficiary to adhere to the DB’s 10-year period. The new Pub 590-B doesn’t seems to address this situation particularly well.
I didn’t find anything in the new Pub that addressed the circumstances where the beneficiary is a trust for the benefit of a combination of EDBs and non-EDBs, but given that the EBD is permitted to opt out of LE RMDs and into the 10-year rule, perhaps this would mean that under these circumstances the beneficiaries of the trust would all be subject to the 10-year rule.
Yes, this certainly will contribute to more confusion. It may take a long time for the IRS to arrive at Regs for various trust beneficiaries, given the new “multi beneficiary trusts”.
The new Pub has also confirmed that the IRS will continue the prior IRS interpretation that will allow EDBs to elect to use the remaining LE of the decedent for deaths post RBD, if that is longer than using the EDB’s LE.
Why would an EDB eligible to elect the 10 year rule opt to select the 5 year rule?
Regarding EDBs opting for the 5-year rule, I wondered about that myself. Perhaps it has to do with IRA agreements that have not been updated to allow election of the 10-year rule (or perhaps still defaulting to the 5-year rule) or it’s referring to cases where the participant died prior to 2020.
Groom Law Group has identified pretty much the same issues as we have been discussing in the following link. I think the IRS needs to rethink the organization of this beneficiary section, as well as more specific paragraph editing.
Updated IRS Publication 590-B Provides Insights On Post-Death RMD Rules After the SECURE Act – Groom Law Group
Permalink Submitted by Alan - IRA critic on Mon, 2021-04-05 17:21
Thanks for the heads up. Will review it ASAP in detail. It took a long time to release the Pub due to a number of major changes, and that is where mistakes can be made. The IRS still needs to release detailed Secure Act Regs, and the Pub should reflect those Regs once they are released.