Inheriting an IRA recently? Revised IRS publication. 590-B Corrected May 25, 2021
If you’ve recently inherited an IRA – or if you’ve been following tax developments after the establishment of the Every Community for the Improvement of Retirement Act (SECURE Act), 2019 – you’ll be happy. Note that an IRS posting error has been corrected.
IRS publication. Error 590-B corrected
IRS publication 590-B for tax year 2020, considered the bible of individual retirement account (IRA) withdrawals, contained an incorrect illustration of the minimum required distribution (RMD). This error was recently corrected, as I will explain. RMDs are withdrawals that must be made in accordance with specific IRS rules on timing and amounts.
The problem: annual withdrawals
When the IRS released the original 2020 version of Publication 590-B, it contained an example of an inherited IRA on page 12 that showed a person subject to the 10-year rule (a non-exempt beneficiary) using a annual Withdrawal. However, an annual withdrawal was not provided for by the SECURE Act, which adopted new rules for Inherited IRAs.
Corrected publication. 590-B is now online
In a May 13 press release, the IRS informed the public of an upcoming correction to Publication 590-B. The corrected publication is now online. The new publication was released on May 25, according to an IRS spokesperson.
Correction: withdrawals don’t have to be annual
The correction removed the wording for the annual withdrawal, clarifying that withdrawals could be made at any time before a 10-year deadline. (Note that the SECURE Act eliminated the “Stretch IRA,” which had allowed RMD to be taken over long periods – in some cases, decades.) For more information, see the RMD Rules for Legacy IRAs.
The recently revised publication 590-B now reads as follows:
“The 10-year rule requires IRA beneficiaries who do not receive life expectancy payments to withdraw the entire IRA balance by December 31 of the year containing the 10th anniversary of the owner’s death. . For example, if the owner dies in 2020, the beneficiary will have to fully distribute the plan by December 31, 2030. The beneficiary is authorized, but not obligated, to receive distributions before this date [emphasis added].
“The 10-year rule applies if 1 ° the beneficiary is an eligible designated beneficiary who chooses the 10-year rule, if the holder died before reaching the required start date; or (2) the beneficiary is a named beneficiary who is not an eligible named beneficiary, regardless of whether the holder died before reaching the required start date.
“For a beneficiary receiving life expectancy payments who is either an eligible designated beneficiary or a minor child, the 10-year rule also applies to amounts remaining in the IRA upon the death of the eligible designated beneficiary or when the minor beneficiary child attains the age of majority, but in either case, the 10-year period ends on the 10th anniversary of the death of the beneficiary or of the majority of the child.
According to the IRS spokesperson, it is common for the Treasury Department and the IRS to “issue regulations and other formal legal guidelines sometime after the enactment of significant tax legislation,” such as the law. SECURE. The Priority Guidance Plan, which was developed by the Treasury Department and IRS to identify and prioritize tax issues and includes contributions from taxpayers, contains a draft regulatory proposal in the 2020-2021 version related to the changes. of the SECURE law. The IRS spokesperson noted that “speakers from the IRS chief counsel appearing at professional bar conferences have indicated that our lawyers are working hard on this project.”
Your tax advisor
As I always caution, be sure to consult your tax advisor before acting on an IRA that you recently inherited. Your tax advisor will be able to deal with your unique situation directly, which is essential in tax matters.
If you have any questions regarding IRS or Legacy IRAs, email me at [email protected]. Include your city and state, and mention that you are a forbes.com reader.