IRS Gives Inherited IRA Owners a Free Pass on Required Withdrawals

IRS waives mandatory withdrawals from certain inherited individual retirement accounts — again

Under the Secure Act of 2019, certain heirs must empty inherited retirement accounts, such as IRAs and 401(k)s, within 10 years after the original account owner’s death.

This was a significant change from the previous rule, which allowed heirs to stretch withdrawals over their lifetime.

Due to confusion and questions surrounding the new rule, the IRS has repeatedly delayed penalties for missed required minimum distributions (RMDs), which were previously mandatory yearly withdrawals.

The latest extension applies to 2024 and only benefits “non-eligible designated beneficiaries,” such as non-spouse heirs or trusts.

This penalty relief may not be entirely beneficial because it allows heirs to defer making a decision about withdrawals.

However, if they amass substantial taxable retirement funds over the years of delayed RMDs, it could lead to larger future distributions and potential penalties if the 10-year deadline is not met.

With the possibility of tax bracket increases in 2025, it may be advantageous for heirs to start making withdrawals in 2024.

However, this should be considered in the context of their overall financial situation and individual circumstances.