The Wall Street Journal recently reported that the IRS has begun enforcing annual distribution requirements for many inherited IRAs—an issue with significant tax, estate-planning, and compliance implications for our clients.
Under the SECURE Act’s 10-year rule, most non-spouse beneficiaries must fully deplete inherited traditional IRAs within ten years of the original owner’s death. What many families do not realize is that—if the decedent had already begun RMDs—the beneficiary must also take annual required minimum distributions in years 1 through 9. Failure to do so now carries a penalty of up to 25% of the amount that should have been distributed.
For clients who are still working, these forced distributions can unintentionally push them into higher marginal brackets, accelerate Medicare IRMAA exposure, and disrupt coordinated tax planning strategies. Executors and trustees also face fiduciary complexities when multiple siblings, minors, or blended families are involved.
As advisors, this is an opportunity—and a responsibility—for CPAs and attorneys to ensure clients are:
- Properly designating beneficiaries
- Timing distributions to reduce lifetime tax burden
- Coordinating inherited IRA flows with trust language (conduit vs. accumulation)
- Reviewing estate plans drafted prior to the SECURE Act
- Avoiding costly errors caused by misunderstanding “stretch IRA” rules that no longer exist
The regulatory landscape continues to evolve. Proactive guidance is indispensable for protecting client assets and avoiding avoidable penalties.