RMDs During 10yr Payout Rule
Read Ed’s comments on this article today.
https://www.investmentnews.com/irs-secure-acts-10-year-rmd-rule-is-not-what-you-thought-205141
When do you think we’ll have some updated information to see if this was a “error” as they rushed to get a 590B out? Also, what part of the 590B does Ed reference in pages 11 and 12? I can’t find the example he is talking about. Thanks.
Permalink Submitted by Alan - IRA critic on Tue, 2021-04-13 20:04
I do think that LE RMDs within the 10 year rule could well be an IRA mistake, whereas Ed seems to accept their change of mind. The example cited is near the top of p 12 starting with “your father died in 2020”. Even if the IRS intended this unexpected change, there are other beneficiary RMD rules that are ackwardly stated. I really think the IRS should reorganize this section entirely, including a couple flow charts showing. These rules are now much more complex and must address the type of beneficiary, the year owner passed, whether pre or post RBD, opting out of the EDB LE RMDs into the 10 year rule, etc. They also need to limit this section to deaths of owner and beneficiaries after 2019 to avoid mixing in the prior rules.
Note that the real mess is with trust beneficiaries and the IRS did not even go there. If the IRS really did change their mind from the Secure Act wording, it might be related to conduit trust beneficiaries where certain of these trusts limited distributions to RMDs, but with the 10 year rule there were no RMDs for the first 9 years. If the IRS now requires 9 years of LE RMDs before the final year LSD, two things are accomplished. First, the IRS receives the taxable income potentially sooner than with no such LE RMDs, and second there are alot of conduit trusts out there that have no issues for the next 9 years, leaving much more time to promulgate the trust RMD rules. The Secure Act itself was not clear in cases of multiple beneficiaries.
This Pub was 4 months late as is. There could be other non Secure related issues such as CRD, so we could be looking at several months if other areas of confusion come to light. In looking at the increased complexity, maybe they should have left the beneficiary distribution rules the same and just published a new Table I for non EDBs which would have simply distributed their RMDs faster?
Final thought. The IRS has never provided oversight of beneficiary RMDs and virtually waives all excess accumulation penalties. So how does this happen now?
Permalink Submitted by brcwm on Tue, 2021-04-13 20:24
I agree with all of those statements. The example seems out of place, as the prior paragraph is talking about a beneficiary of a beneficiary. But, in the example , it does reference that this father’s IRA was a “traditional”. Shaking my head at this one. Also, there is no concern that Roth IRAs are subject to the LE RMDs during years 1-9 right?
Permalink Submitted by David Mertz on Wed, 2021-04-14 02:28
I hadn’t considered the possibility that LE payout and the 10-year rule could be applied in combination. I suppose the statute doesn’t preclude that and we’ll need to see updated regs to know if this is the case.