Non-spouse Beneficiary Inherited IRA Rules: 10-Year Rule, RMD requirement, Exceptions, Tax Strategy

In July 2024, the IRS released its long-awaited final regulations clarifying the annual RMD (required minimum distribution) rules for non-spouse beneficiaries of retirement accounts that are subject to the new 10-year rule. But like most IRS regulations, it’s anything but simple and straightforward. The short answer is for non-spouse beneficiaries that are subject to the 10-year rule; some beneficiaries will be required to begin taking annual RMDs starting in 2025 while others will not. In this article, we will review: 1) The RMD requirement for non-spouse beneficiaries 2) RMD start date 3) IRS penalty relief for missed RMDs 4) Are one-time distributions required for missed RMDs 2020 - 2024? 5) Different RMD rules for Traditional IRAs versus Roth IRAs 6) Different RMD rules for Roth 401(k) versus Roth IRAs 7) Common RMD mistake for stretch rule beneficiaries In addition to covering the topics above related to the new RMD rules, we want this article to be a “one-stop shop” for non-spouse beneficiaries to understand how these non-spouse inherited IRAs work from start to finish, so we will start this article by covering: 1) How Inherited IRA work for non-spouse beneficiaries 2) Rules for a decedent that pass either before or after 2019 3) The new 10-year Rule 4) Beneficiaries that are granted an exception to the new 10-year rule 5) Required minimum distributions (RMDs) 6) Taxation of distributions from inherited IRAs 7) Tax strategies and Pitfalls associated with Inherited IRA accounts 8) Special rules for minor children with Inherited IRAs Contact Michael Ruger with Questions: 518-477-6686 or [email protected] Visit our website: https://www.greenbushfinancial.com/ Subscribe to our channel for more financial planning tips:    / @greenbushfinancialgroup   #inherited #michaelruger #greenbushfinancial ------------------------------- 0:00 Intro 1:28 Agenda 3:10 Non-Spouse Beneficiary (Stretch Provision) 4:19 New Provisions 4:55 Exceptions 6:10 Minor Child as the Beneficiary 7:19 Non-Spouse Beneficiary Rules & Examples ----------------------------------- Fidelity Inherited IRA RMD Calculator: https://irastuff.com/BENE/prd/rmd/ind... Frequently Asked Questions (FAQs): What did the IRS clarify about non-spouse beneficiary RMDs in 2024? In July 2024, the IRS issued final regulations confirming that some non-spouse beneficiaries subject to the 10-year rule must begin taking annual required minimum distributions (RMDs) starting in 2025. Whether annual RMDs are required depends on the decedent’s age at death and the type of retirement account inherited. Who must take annual RMDs under the 10-year rule? If the decedent passed away after reaching their Required Beginning Date (the age at which RMDs must begin), the non-spouse beneficiary must take annual RMDs during the 10-year depletion period. If the decedent passed before reaching that age, the beneficiary is only required to deplete the account by the end of the 10 years—no annual RMDs are needed. What are the new RMD start dates for non-spouse beneficiaries? The IRS delayed required RMDs for non-spouse beneficiaries until 2025. Any missed RMDs for the years 2020–2024 are waived, and beneficiaries are not required to make catch-up distributions for those years. Does the 10-year rule clock reset under the new regulations? No. Even though the IRS delayed annual RMDs until 2025, the 10-year period to deplete the inherited account still begins the year after the decedent’s death. Beneficiaries must empty the account by the original deadline. Do Roth IRAs have RMD requirements for non-spouse beneficiaries? No. Inherited Roth IRAs are subject to the 10-year rule, but they do not require annual RMDs since Roth owners are never required to take RMDs during their lifetimes. Beneficiaries can let the Roth IRA grow tax-free for the full 10 years before withdrawing the balance. Are Roth 401(k)s treated differently? Yes. If a Roth 401(k) contains only Roth dollars, no annual RMDs are required during the 10-year period. However, if the account also contains any pre-tax sources—such as employer matches—the entire balance, including the Roth portion, becomes subject to annual RMDs. Rolling Roth 401(k) funds into a Roth IRA before death can avoid this issue. What happens to non-spouse beneficiaries who still qualify for the stretch rule? Those grandfathered under the old stretch rule must continue taking annual RMDs each year. Only 2020 distributions were waived under COVID relief. Any missed RMDs after 2020 may trigger penalties unless corrected under the new reduced penalty rules.