Inherited IRA RMD Rules, Volume 2: Our Questions Answered – Sort of…

This will be a short one.

In an earlier blog, we explored the dilemma facing a number of Americans who inherited IRA accounts from loved ones who passed after 1/1/2020 (Reference that article here.) As of October 7th, we now have an answer to the timeliest issue in the matter.

In advance of a formal/final ruling, the IRS issued a notice (Notice 2022-53) that any inherited IRA subject to the 10-year rule WILL NOT be required to take the proposed Required Minimum Distributions for tax years 2021 or 2022. Consequently, there will also be no penalty for failure to make any such distribution in these years.
The notice does reiterate its initial intent to require distributions for such accounts, but clarifies that this will not take effect until 2023.

While the official ruling (due before year-end) will further clarify the rules for these “newly” inherited IRAs, the expectation is that the distribution will be calculated on the single-life IRS actuarial table. In simplest terms, this means that the distributions will be a product of the prior year-end account balance divided by the new account owner’s life expectancy – a figure that will, in most cases, not come close to depleting these accounts over the 10-year life cycle. With that in mind, the correct distribution schedule will become a matter of optimally spreading distribution income over the 10-year period in consideration of the account holder’s other income sources. To identify this optimal strategy account holders should consult with both their investment advisor and tax professional.

Thankfully, investors and advisors alike can breathe a big sigh of relief. This will be a decision for 2023. No tax fire drills for 2022 – at least on the Inherited IRA RMD front!

At Buckhead Capital, we take great pride in our responsibility to implement strategies that serve our client’s best interest – both in making investment decisions and tax conscious execution of financial objectives. If these new RMD rules apply to you (or if you are uncertain whether they do) please do not hesitate to reach out. We will be more than happy to assist you in navigating the best path forward.

Wade Buffington

Wade Buffington

Wade serves as a Financial Planner for High Net Worth clients. He joined Buckhead Capital in August 2020. Previously, he provided financial plan preparation, execution, and portfolio management for High Net Worth clients with TrueWealth Management in Atlanta. Wade holds a B.B.A. in Finance from the University of Georgia and completed the Certified Financial Planner (CFP®) Certificate Program through the University of Georgia’s Terry College of Business.