2025 Update: RMDs and Inherited Retirement Accounts

Staying informed about retirement account rules is crucial for avoiding costly penalties and ensuring optimal financial planning. Non-spouse beneficiaries have faced considerable confusion regarding Required Minimum Distributions (RMDs) for inherited IRAs. With the IRS issuing new guidance for 2025, understanding these changes can help beneficiaries navigate the requirements and avoid penalties.

The SECURE Act of 2019 & 10-Year Rule

The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 brought significant changes to how beneficiaries handle inherited retirement accounts. Most non-spouse beneficiaries are required to withdraw the full balance of an inherited IRA within 10 years. Initially, it was assumed that distributions could be postponed until the final year of this period. However, in its later announcements, the IRS clarified that if the original owner had already begun taking RMDs, beneficiaries must make annual withdrawals.

This generated confusion and uncertainty among beneficiaries. The new update impacts how future distributions will be handled, ensuring a clearer framework moving forward.

Relief for Missed RMDs (2021-2024)

To address the concerns of missed distributions, IRS Notice 2024-35 provides temporary relief for beneficiaries who failed to take RMDs between 2021 and 2024. This relief is applicable only to IRAs that were inherited from account holders who had already started taking RMDs before their passing.

New RMD Rule for 2025

Beginning January 1, 2025, waivers for missed RMDs will no longer be available. It becomes critical to plan appropriately to meet the annual withdrawal requirements, making it even more essential for beneficiaries to be proactive in their planning and compliance efforts.

Who Is Exempt from the SECURE Act Withdrawal Rule?

There are specific groups exempt from the 10-year rule, including:

• Surviving spouses
• Minor children (under 21)
• Individuals with disabilities or chronic illness
• Non-designated beneficiaries such as charities and estates
• Accounts inherited before 2020

With these exemptions in mind, it is urgent for beneficiaries to understand the changes set for 2025. Reviewing withdrawal plans and consulting a financial advisor is highly recommended to ensure adherence to the new regulations and avoid any disruption to retirement planning.