IRS Clarifies Rules for Withdrawals from Inherited IRAs by Joanie Stein, CPA

Posted on September 13, 2022 by Joanie Stein

The 2019 passage of the SECURE Act ushered in a new rule requiring certain beneficiaries of inherited individual retirement accounts (IRAs) to empty those accounts and pay the taxes due within 10 years of an original owner’s death. While the law made it clear that non-spouse beneficiaries cannot stretch out withdrawals from inherited accounts over their lifetimes, the IRS did not clarify the exact timing of those required distributions until 2022.

Under current law, original IRA owners must begin taking annual required minimum distributions (RMDs) from those accounts and paying the related tax liabilities at their ordinary income tax rates when they turn 72 years of age. The actual amount of those RMDs depends on the value of the assets in an IRA at that time and the life expectancy of the account owner. When IRA owners pass away, their surviving spouses, minor children and dependents who are disabled, chronically ill or less than 10 years younger than the decedents are the only named beneficiaries who may treat those IRAs as their own, allowing the assets to stay in the account and continue to grow on a tax-deferred basis. The SECURE Act changes the rules for all other IRA beneficiaries, requiring them to draw down the balance in that account by the end of the 10th year following the original owner’s death. However, the language of the law left a lot of room for interpretation.

Many taxpayers assumed that the new law allowed them to defer taking RMDs from inherited IRAs until the 10th year after the original account owner’s death. While this is true when original owners died before reaching the required age to begin taking RMDs, it is not the case when the original owner passes away at or after turning age 72. Rather, recent guidance from the IRS clarifies that non-spouse beneficiaries must not only deplete the assets in the inherited IRA by the end of the 10-year period, but they must also begin taking annual RMDs from those accounts when the original owner was age 72 or older and was already required to take those withdrawals.

This means beneficiaries of IRAs whose original owners were age 72 or older must take annual RMDs from those accounts (and pay the related tax liabilities at their individual income tax rates) in years one through nine following the original account holder’s death and remove any remaining balance from those accounts (and pay the related tax liabilities) by the end of year 10. Depending on the value of the IRA, this could become an expensive tax liability for named beneficiaries and put them in higher tax brackets for which they will pay higher tax rates on ordinary income and certain capital gains.

This new guidance should serve as a warning to original IRA owners and those with inherited IRAs to review their existing estate plans and consider alternative strategies to improve tax efficiency. Original account owners also should recognize that the designated beneficiaries they name on IRA documents supersede any beneficiaries named in their wills. Consequently, it is a good idea for individuals to regularly revisit their beneficiary designations and ensure that they accurately reflect the specific individuals they wish to receive those assets.

About the Author: Joanie B. Stein, CPA, is an associate director of Tax Services with Berkowitz Pollack Brant Advisors + CPAs, where she works with individuals and closely held businesses to implement sound strategies that are intended to preserve wealth and improve tax-efficiency. She can be reached at the CPA firm’s Miami office at (305) 379-7000 or at