Required Minimum Distributions For 2024- May 6, 2024

In 2019, Congress enacted the Setting Every Community Up for Retirement Enhancement (“SECURE”) Act, which made numerous modifications to the rules surrounding distributions from retirement accounts, including post-death distributions by account beneficiaries. In 2022, Congress enhanced those rules with the enactment of what is known as SECURE 2.0. Since the enactment of SECURE there have been many questions surrounding the requirement that certain beneficiaries withdraw the funds over a 10-year period.

In response to the many questions, the Treasury issued Proposed Regulations stating that, if the account owner dies after their Required Beginning Date, and the beneficiary is subject to the 10-year rule, the beneficiary is required to take Required Minimum Distributions (“RMD”) throughout years 1 through 9. The calculations for the RMDs would depend on the beneficiary’s life expectancy.

Despite the issuance of the Proposed Regulations, which provides a clear indication of the IRS’s position, the IRS has chosen, for the last few years, to not “fully enforce” their position. Last year, they announced that while 2023 would be another year of delayed enforcement, we should plan on 2024 having the rules finalized.

However, recently the IRS issued Notice 2024-35, which again delays the implementation of the rules until the regulations are finalized. As in the past, their position is that a taxpayer will not be penalized for failure to withdraw an RMD from an Inherited IRA for the tax year 2024.

That said, the IRS is not stating that there is no RMD requirement; instead, the penalty for failure to withdraw the RMD will be waived. Practitioners should take caution when advising their clients with regard to the effect of this Notice. Additionally, if there is a Trust involved, there may nonetheless be a requirement to distribute the RMD to the beneficiary. The Notice advised that the final regulations will soon be issued and will have an effective date of January 1, 2025.

If you have questions about how this Notice affects you or your clients, please contact our attorneys at Katz Chwat, P.C. for guidance.