IRS Updates to RMDs

[Aitrus]

I came across an article this morning that made me realize that there's been a number of changes to the RMD rules this year. It won't affect me for a while yet - I'm 43 - and it's not a section of retirement planning I keep up on as much as I should, so it caught me a bit by surprise. Posting here so that anybody who is affected can get up to speed.

https://www.fedsmith.com/2023/07/27/rmd-update-again/

It seems that the SECURE Act made some changes to inherited accounts, and the IRS issued some new rules on RMDs.

SECURE Act changes: https://www.fedsmith.com/2023/01/18/sec ... d-to-know/

New IRS Rules: https://www.fedsmith.com/2023/02/17/mas ... d-to-know/

Because of the confusion in these new rules, the IRS has issued an updated rule for 2023 (namely, a waiver), which is what the first article above is about. Apparently...

"Previous guidelines suggested that if the decedent had already begun RMDs prior to death, the beneficiary would have to continue distributions as if the decedent were still alive. Many people were getting this wrong, incorrectly assuming they just needed to have the account fully distributed by the 10th year of having inherited it. In response, the IRS released notice 2023-54 stating that due to the continued confusion, they would waive the requirement for this year."

[evilanne]

So if I die prior to 75, my beneficiaries have 10 years to withdraw the money but if I reach 75 or later it is reduced to 5 years?? I'm confused, not sure if I'm reading this right

https://www.irs.gov/pub/irs-drop/n-23-54.pdf

[Bubba]

Thanks for keeping us apprised. I'm also in my 40s, but I'm watching this stuff like a hawk. Any further updates are appreciated.

[evilanne]

This is a little clearer on non-spouse RMDs https://www.kiplinger.com/taxes/irs-end ... rited-iras
In going back to https://www.irs.gov/pub/irs-drop/n-23-54.pdf it appears that everything is 10 years for everything
"beneficiary of an employee who died after the employee’s required beginning date must take an annual RMD beginning in the first calendar year after the calendar year of the employee’s death. In order to satisfy §401(a)(9)(B)(ii) (applied by substituting “10 years” for “5 years”), the remaining account balance must be distributed by the 10th calendar year after the calendar year of the employee’s death"
It seems like the confusion has been that beneficiaries are required to take RMDs in those cases where the decedent is subject to RMDs

[Bubba]

This is a little clearer on non-spouse RMDs https://www.kiplinger.com/taxes/irs-end ... rited-iras
In going back to https://www.irs.gov/pub/irs-drop/n-23-54.pdf it appears that everything is 10 years for everything
"beneficiary of an employee who died after the employee’s required beginning date must take an annual RMD beginning in the first calendar year after the calendar year of the employee’s death. In order to satisfy §401(a)(9)(B)(ii) (applied by substituting “10 years” for “5 years”), the remaining account balance must be distributed by the 10th calendar year after the calendar year of the employee’s death"
It seems like the confusion has been that beneficiaries are required to take RMDs in those cases where the decedent is subject to RMDs

I've always wondered if there was a way to place my 401k upon death into an irrevocable trust fund and let that go to the family over many, many years. I don't know, however, if the TSP works with something like that.

[evilanne]

Generally it is not recommended to have a trust as a beneficiary from everything I have read it can be problematic. With the Secure Act and loss of Stretch option, i.e. the new ten year rule I think it makes less sense, but see https://www.wealth.com/resources/articl ... nt-account that has pros & cons of naming trust as beneficiary.

Another link https://www.investopedia.com/ask/answer ... iaries.asp

[Bubba]

Generally it is not recommended to have a trust as a beneficiary from everything I have read it can be problematic. With the Secure Act and loss of Stretch option, i.e. the new ten year rule I think it makes less sense, but see https://www.wealth.com/resources/articl ... nt-account that has pros & cons of naming trust as beneficiary.

Another link https://www.investopedia.com/ask/answer ... iaries.asp

Thanks! I would be curious if there's a way to do that within the TSP or if I have to do that separately from the TSP.

[evilanne]

Per TSP you can designate a person or persons, your estate, or a trust to receive your TSP account after your death. Unless there is a good reason, I don't know if it is worth the legal and accounting costs associated with the Trust.
I have.a friend that has been dealing with her mother's estate for the last couple of years. She is in the process of setting up Trust accounts for niece and nephews. Seems like a lot of extra work for the executor of the estate but I do understand concern that beneficiaries may not financially responsible or that some may not be able to care for themselves. Estates & Trusts have to issue 1041 tax return & K-1s for any distributions each year complicating tax filing.
The more I read, the more I dislike the Secure Act and the elimination of the stretch option. Unless you have an EDP, eligible designated beneficiary, that you need to provide for, i don't see any benefit. https://www.fidelity.com/viewpoints/wea ... to-a-trust
I'm not sure I understand the different types of trusts (https://www.investopedia.com/terms/s/se ... -trust.asp) but the non-see-through trust requires shorter 5 year period for distributions.

[Bubba]

Per TSP you can designate a person or persons, your estate, or a trust to receive your TSP account after your death. Unless there is a good reason, I don't know if it is worth the legal and accounting costs associated with the Trust.
I have.a friend that has been dealing with her mother's estate for the last couple of years. She is in the process of setting up Trust accounts for niece and nephews. Seems like a lot of extra work for the executor of the estate but I do understand concern that beneficiaries may not financially responsible or that some may not be able to care for themselves. Estates & Trusts have to issue 1041 tax return & K-1s for any distributions each year complicating tax filing.
The more I read, the more I dislike the Secure Act and the elimination of the stretch option. Unless you have an EDP, eligible designated beneficiary, that you need to provide for, i don't see any benefit. https://www.fidelity.com/viewpoints/wea ... to-a-trust
I'm not sure I understand the different types of trusts (https://www.investopedia.com/terms/s/se ... -trust.asp) but the non-see-through trust requires shorter 5 year period for distributions.

Yeah, the biggest problem (in my view) is the constant maintenance of someone (lawyer, CPA, etc.) for a trust. Some family did it in the past and while their children could have used it at one point or the other, the trust has always made it to where the less financially sound kids couldn't waste the money. As a result, the grandchildren get something too.

I've been toying with the idea of leaving something in a trust that can sit there and pay out over long periods of time (e.g. every 10 years) something to the trustees. Eventually the thing snowballs and becomes a massive thing for future generations. Obviously, that could always change if big changes happen in the US, so we'll see where that goes over the next 15 to 20 years.

Thanks for the feedback!