A couple of years ago I was asked what the tax consequences are when a Roth IRA is split in divorce. After a pause, I answered honestly: “I have no idea…but will find out.” In fact, there is no specific guidance in the Tax Code or in the regulations on how to handle such a transaction.
It looks like IRA owners will probably have to wait awhile to take advantage of a new program that allows them to self-correct IRA errors that previously couldn’t be fixed. In Notice 2023-43, the IRS said that self-correction for IRAs can’t be used until the IRS issues rules for the new program. And those rules aren’t required to be issued until the end of December 2024.
One of the more controversial provisions of the new SECURE 2.0 law concerns 401(k) catch-up contributions.
Most 401(k) plans – as well as 403(b) and governmental 457(b) plans – permit employees who are age 50 or older to make catch-up contributions. The limit for catch-ups in 2023 is $7,500, allowing for total elective deferrals of up to $30,000.
Question:
Both of my parents passed away last year. My mother passed earlier in 2022 and I was able to take her year-of-death RMD out of the inherited IRA before the end of the year. My dad passed in October and once I got the inherited IRA transferred over in December, I forgot to take his year-of-death RMD until January of 2023. What forms will I need to complete to request a waiver, and would this be a good cause for a waiver?
Despite the reduction in the penalty for missing required minimum distributions (RMDs) in the new SECURE 2.0 law, it looks like you will still be able to get the IRS to waive the penalty altogether.
Before 2023, if you missed an RMD the IRS could impose a penalty equal to 50% of the missed amount. However, the IRS almost always waived the penalty if you took the RMD and filed Form 5329 (with a reasonable cause explanation) with the IRS.
When you leave your job and aren’t fully vested in your company plan account, the plan will forfeit your unvested portion. Recently, the IRS issued new guidance clarifying the forfeiture rules.
As we’ve reported, the IRS recently said it would waive the 50% penalty on RMDs missed in 2021 and 2022 for IRA beneficiaries subject to the 10-year payout rule who inherited in 2020 or 2021.
These waivers were announced in IRS Notice 2022-53. Although the Notice is not clear, it appears that beneficiaries are not required to take RMDs for years that the penalty waiver applies to. However, as things stand now, the grace period will end in 2023.
If you are a victim of Hurricane Ian, you may be eligible for some relief when it comes to your retirement accounts.
Last Friday (October 7, 2022), the IRS waived the 50% penalty on missed 2021 and 2022 inherited retirement account RMDs for beneficiaries subject to the SECURE Act 10-year payout period. The guidance was in IRS Notice 2022-53.
Question:
When will the IRS release final regulations for RMDs on beneficiary IRAs?
Kim
