The IRS just released Notice 2022-53 waiving penalties for taxpayers who inherited retirement plans or individual retirement accounts and failed to take Required Minimum Distributions (RMDs) in 2021 or 2022 though contrary, Proposed Regulations released earlier this year indicated these taxpayers should take the RMDs.

These RMDs only applied if you inherited retirement assets from a person who was already taking RMDs and they were subject to the 10-year stretch rule. The SECURE Act imposed the 10-year stretch rule, in which you have 10 years to take distributions out of the account.

The 10-year period begins in the year after death of the retirement account owner. Fortunately, spouses are not subject to these draconian rules. Instead, spouses are allowed to stretch their annual distributions over their lifetime. There is no penalty relief available for spouses since the rules have not changed under the SECURE Act.

If the owner was not required to take distributions, then the beneficiary has up to 10 years to take the distributions, but the beneficiary does not have to take any distributions in years 1-9. If the owner was subject to required distributions, then the Proposed Regulations required the beneficiary to take a distribution every year and fully deplete the IRA in year 10.

The good news is that the IRS did issue the notice with enough time for a beneficiary to decide so they do not owe any penalties for 2021 or 2022. If a beneficiary has paid a penalty for either year, the IRS allows them to file for a refund. Refunds are not automatic, and the beneficiary must request the refund. Refunds will likely not go out until sometime in 2023.

If you need help, contact our team at Borkuslaw Group today and make a live or online appointment!

Please note that information contained in this news alert is not and should not be construed as legal advice or opinion nor does this information alert create an attorney-client relationship.

About the Author: Randall Borkus

We believe that business succession, asset protection and estate planning are less about numbers and much more about helping people preserve, protect, and provide for who and what is most important to them.