July 31, 2024

The IRS recently released the long-anticipated Final Regulations for the SECURE Act, addressing Required Minimum Distributions (RMDs) and other significant provisions. This release has been highly awaited by financial advisors, tax professionals, estate planners, and investors alike. After an extensive review of the nearly 300 pages of regulations, several key points emerge, notably the rules surrounding RMDs during the 10-Year Rule and the differentiation between Eligible and Non-Eligible Designated Beneficiaries. Beneficiaries inheriting from an owner who died on or after their Required Beginning Date (RBD) are subject to both the 10-Year Rule and the “Stretch” rules, necessitating annual RMDs in years 1-9 with full distribution by the 10th year.

The Final Regulations also provide clarity on undistributed year-of-death RMDs. Multiple beneficiaries can satisfy the RMD in any proportion they choose, offering flexibility but also introducing complexity when dealing with multiple IRAs with different beneficiaries. A special rule mandates proportional RMDs from each IRA based on prior-year-end values if the beneficiary designations differ. Additionally, an automatic waiver of the year-of-death RMD shortfall penalty is granted to beneficiaries who satisfy the RMD by their tax-filing deadline, providing much-needed relief and time to comply with the regulations.

For surviving spouses, the Final Regulations offer both good and bad news. The ability to treat an inherited IRA as their own remains open-ended, eliminating the previously proposed deadline. However, surviving spouses must account for “Hypothetical RMDs” if they initially use the 10-Year Rule and later choose to treat the IRA as their own. This requires calculating and distributing RMDs for the years they would have been required if the IRA had been treated as their own from the start. This provision underscores the importance of strategic planning and timely decisions to optimize tax outcomes.

You can also review this Forbes article for more information.

The regulations also address the treatment of Designated Roth Accounts and the role of trusts as retirement account beneficiaries. If a participant’s entire plan balance is in a Designated Roth Account, beneficiaries can avoid annual distributions during the 10-Year Rule, maximizing the account’s growth potential. Trusts named as beneficiaries benefit from greater flexibility, with several changes favoring client-friendly outcomes, such as the elimination of the requirement to provide a copy of the trust to the IRA custodian. These updates highlight the evolving landscape of retirement planning and the need for advisors to stay informed to best serve their clients – and specifically working with integrated planning professionals who can layer trust plans along with IRA legacy planning.

Contact Omni360 for your IRA planning needs. Their experienced team offers comprehensive guidance to help you maximize your retirement savings and ensure a secure financial future. Trust Omni360 to provide personalized strategies tailored to your unique goals and circumstances.