Relief for Missed RMDs (Required Minimum Distributions) on Inherited Pension and IRA Accounts

The IRS is behind in providing the rules for when and how distributions must be taken from retirement accounts for those who died in 2020 through 2022.  After amendments by Congress, the list of those who may utilize extended payout periods has been narrowed to surviving spouses, children (but NOT grandchildren) during the period that they are minors following inheriting such accounts or those who are permanently disabled (under IRS rules).

For all others inheriting such accounts, payout must commence no later than the end of the calendar year following the year of death of the account owner.  ROTH IRAs are an exception to the rule of immediate payout, but ARE included in the requirement that all such accounts not left one of the three excepted beneficiaries noted above, MUST be fully paid out by the end of the 10^th year following the year of death.  Even minor children inheriting retirement accounts MUST payout any remaining balance in such accounts by the 10^th year following the year in which they attain majority.

Since final guidance from IRS is still pending, it has (graciously) waived penalties for anyone who should have commenced payouts under these revisions during 2020 – 2022 and will refund any self-assessed penalties upon filing of a claim for refund.

As you can see, this is not easy to follow, if you have been unfortunate to lose a loved one, but who granted you the bounty of leaving their remaining retirement accounts to you.  We’re available to consult on the amount and timing of such payouts, if you need help in understanding the rules and avoiding penalties for failure to follow payout requirements (those penalties were previously a hard and harsh 50% of the amount of the missed payout, but if prompt action is taken to get into compliance, the penalty can be as low as 10% – or even zero, if reasonable cause can be provided).

Mark H. Misselbeck, CPA, MST, is a Tax Principal at Katz, Nannis + Solomon, P.C. If you have any questions or would like to speak with one of our tax professionals, please contact our office at 781-453-8700.