The Internal Revenue Service said Friday it would delay enforcement of new rules for taking required withdrawals from some inherited retirement accounts until 2023, after taxpayers complained the changes were confusing.
The relief applies to taxpayers who inherited retirement accounts in 2020 or 2021 who the IRS said had to take annual withdrawals right away instead of waiting until the end of a 10-year period to deplete their accounts.
The new guidance doesn’t say that the annual required minimum distributions are waived, but by offering penalty relief, it essentially means that this group of taxpayers doesn’t have to take RMDs for 2021 and 2022, an IRS spokesman said.
This guidance doesn’t change the rules for spouses and certain other beneficiaries known as eligible designated beneficiaries, including the chronically ill, who must still take annual RMDs. Also, heirs who inherited accounts before 2020, are still subject to the old rules, which means they take annual withdrawals over their expected lifetimes. Most IRA owners aged 72 and over also still have to take required withdrawals for 2022. There are strategies for reducing the pain of required withdrawals.
Normally, if a taxpayer fails to take a required withdrawal there is a 50% penalty — assessed at 50% of the amount that should have been taken out.
The IRS guidance says it won’t assert that penalty for 2021 and 2022, if these taxpayers didn’t take a distribution. Any of these taxpayers who paid the penalty for a missed RMD in 2021 can request a refund, the IRS says.
Congress changed the rules for inherited retirement accounts in a 2019 law, requiring most taxpayers who inherited accounts to empty the funds within 10 years, not over their lifetimes, as was previously allowed. Then, in February, the IRS proposed rules mandating heirs make annual withdrawals during that 10-year period in cases where the original owner was already subject to RMDs.
The IRS said it received reams of comments from disgruntled taxpayers in response to the changes. Taxpayers who inherited in 2020 didn’t take withdrawals in 2021 because they didn’t think they had to, and they weren’t sure if they were supposed to in 2022.
The IRS said the final rules on inherited IRAs will apply no earlier than 2023.
Write to Ashlea Ebeling at eval(unescape(‘%64%6f%63%75%6d%65%6e%74%2e%77%72%69%74%65%28%27%3c%61%20%68%72%65%66%3d%22%6d%61%69%6c%74%6f%3a%61%73%68%6c%65%61%2e%65%62%65%6c%69%6e%67%40%77%73%6a%2e%63%6f%6d%22%3e%61%73%68%6c%65%61%2e%65%62%65%6c%69%6e%67%40%77%73%6a%2e%63%6f%6d%3c%2f%61%3e%27%29%3b’))
(END) Dow Jones Newswires
10-07-22 1840ET
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