February 2025 – Inherited IRA – Required Minimum Distributions (RMDS)

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INHERITED IRA – REQUIRED MINIMUM DISTRIBUTIONS (RMDs)

 

OVERVIEW

 

Life’s financial changes—like receiving an inheritance—can feel overwhelming, especially when it comes to understanding their impact on your taxes and overall financial picture. If you’ve inherited an IRA from a family member or close friend, it’s important to be aware of recent changes to the Required Minimum Distribution (RMD) rules.

In this newsletter, we’ll highlight the most important changes, explain how they may affect you, and provide recommendations to help you navigate your next steps with confidence.

 

 

THE CURRENT REQUIREMENTS FOR INHERITED IRA RMD’S

 

Beginning in 2020, under the SECURE Act, non-spouse beneficiaries of inherited IRAs or 401(k)s were required to distribute all inherited assets within 10 years of the original owner’s death. However, there was initially no clear guidance on whether annual required minimum distributions (RMDs) were necessary during that 10-year period.

 

·     From 2021 through 2023, the IRS temporarily waived RMDs for non-spouse beneficiaries as it worked on final regulations.

 

CHANGES TO THE REQUIREMENTS

 

In July 2024, the IRS issued updated guidance. Starting in 2025, annual RMDs will be required in the year after the original owner’s death for non-spouse beneficiaries if the original account owner was already required to begin taking RMDs before their death. If the original account owner passed away before they were required to begin taking RMDs, the non-spouse beneficiary is not required to take annual distributions from an inherited IRA.

For complete details, see the IRS Newsroom update and final regulations updating the required minimum distribution (RMD) rules.

 

To summarize, the updated IRS guidelines outline the following rules for RMDs from inherited IRAs:

 

·     If the original account holder had been required to begin taking RMDs before their death:

·     The beneficiary must take annual RMDs starting in the year of the account holder’s death.

·     If the original account holder was not required to begin taking RMDs before their death:

·     The beneficiary is not required to take annual RMDs. However, the entire account must still be distributed within 10 years under the 10-Year Rule.

 

These changes clarify distribution obligations, particularly for account holders who have reached the RMD starting age.

·     For further details on how beneficiary RMDs are determined and the 10-Year Rule, visit the IRS pages on Retirement plan and IRA required minimum distributions FAQs and Retirement topics – Beneficiary.

 

HOW DOES THIS IMPACT YOU, AND WHAT SHOULD YOU DO?

 

These changes primarily affect adult children, grandchildren, siblings, and friends of IRA account holders who passed away in 2020 or later. Starting in 2025, applicable beneficiaries will need to take annual RMDs, with all assets fully distributed within 10 years. If you’ve inherited an IRA, we strongly recommend consulting your financial advisor or reaching out to us for personalized guidance.

 

As your trusted tax provider, we’re here to help. If you have questions or need assistance, please do not hesitate to contact us—we’re happy to support you!