It’s hard to believe that we are already halfway through 2023! As everyone gears up for fun, sun, and travel, we bring you another edition of Advice Beyond Investments. In this look at what’s happening in the financial world outside of the markets, we will focus on a few timely tax-related items.
As many of our clients are aware, there have been recent changes to tax law regarding inherited IRA distribution requirements. While spouses and other eligible designated beneficiaries are still able to utilize their life expectancy timelines, most designated beneficiaries have had to adapt to a new ten-year timeline in which to withdraw the full account value.
Though recent regulation has established this ten-year window in which non-spouse beneficiaries must deplete inherited IRA accounts, it has not set any guidelines for an annual required distribution amount within that ten-year window. That may very well be changing in the coming months. There is a proposed regulation from the Treasury Department that would establish an annual distribution requirement beginning later in 2023. Based on our understanding of the language in the proposed regulation, this change would only affect inherited IRA accounts where the deceased account owner had reached their Required Beginning Date prior to their date of death.
Keep in mind the Treasury has not released the final version of the rule. Originally, a date of June 30th was targeted as a deadline to update these regulations, but as of the date of this article no changes have been announced. Here are a few summary points on the table at this time:
• Designated beneficiaries would ONLY be affected by these updates if the original owner of the retirement account had already reached or exceeded their Required Beginning Date prior to passing away. If the decedent and original account owner had not yet reached this age, the beneficiary will still be under the new ten-year rules but will not have an annual distribution requirement.
• The IRS has noted that affected beneficiaries holding inherited accounts in 2021 and 2022 may have to take make-up distributions for those years, however there should be no penalty applied to the required withdrawals for those past years’ missed distributions.
• The proposed legislation would require affected beneficiaries to take annual withdrawals in years 1-9 based on their life expectancy, then distribute the remaining balance of the account (if applicable) in the tenth year.
Your team here at CSG Capital Partners will continue to monitor the situation and will update you as soon as we have additional information.
