Retirement tax questions

Opus 17 · ‎December 9, 2022

Under the new regulations, you will be subject to RMDs starting in 2023. Per notice 22-53, you will not be penalized if you do not take an RMD for 2022. So this is a bit pointless when thinking about your 2022 tax return. You don't have to take an RMD unless you want to.

Your confusion stems from the fact that the 2022 draft version of publication 590-B does not include the RMD requirement for the 10 year rule (as best I can tell from reading it carefully). The publication follows the current regulations rather than the proposed regulations. This quote may help to explain.

When IRS released Publication 590-B for 2020 in spring 2021, there was a section in the publication explaining the 10-year inherited IRA withdrawal rule. In its explanation, the IRS implied that there would be RMDs during the 10-year period, which, in fact, was not correct.

The IRS recently [in 2021 when this article was written] revised Publication 590-B to clarify and to correct its position on the 10-year rule. In particular, IRS states that there are no RMDs required provided that a non-eligible designated beneficiary's inherited IRA is withdrawn in its entirety by the end of the 10-year anniversary of the original IRA owner’s death.

https://www.myfederalretirement.com/inherited-ira-10-year-rule/

Pub 590-b currently says

"The 10-year rule requires the IRA beneficiaries who are not taking life expectancy payments to withdraw the entire balance of the IRA by December 31 of the year containing the 10th anniversary of the owner’s death. For example, if the owner died in 2021, the beneficiary would have to fully distribute the IRA by December 31, 2031. The beneficiary is allowed, but not required, to take distributions prior to that date."

That reflects the regulations that exist as of today (12/9/2022) as well as the regulations that existed in October when notice 22-53 was released. If you really want to get technical, you will need to read a lot of regulations, because the RMD rules are written into the regulations for workplace retirement plans (section 401), and then the IRA regulations (section 408) reference back to the workplace regulations (the IRA regulations say "you must follow section 401" rather than restating the rules in plain language). Here is a version of the notice, highly edited and annotated for clarity.

The Treasury Department and the IRS published proposed regulations regarding RMDs under section 401(a)(9) of the Code and related provisions in the Federal Register on February 24, 2022 ... which provided that the regulations, when finalized, would apply beginning with the 2022 distribution calendar year. Along with other matters, the proposed regulations address issues relating to the new 10-year rule in ... the Code.

In order to satisfy section 401(a)(9)(B)(i), the beneficiary of an [IRA owner] who died after the [IRA owner's] required beginning date must take an annual required minimum distribution beginning in the first calendar year after the calendar year of the [IRA owner's] death. In order to satisfy section 401(a)(9)(B)(ii), the remaining account balance must be distributed by the 10th calendar year after the calendar year of the [IRA owner's] death...In order to satisfy both of those requirements, the proposed regulations generally provide that...annual RMDs must continue to be taken after the death of the [IRA owner] , with a full distribution required by the end of the 10th calendar year following the calendar year of the [IRA owner's] death.

The Treasury Department and the IRS provided a 90-day comment period for the proposed regulations. During that period, some individuals who are owners of inherited IRAs ... submitted comments indicating that they thought the new 10-year rule would apply differently than what was proposed in the proposed regulations. Specifically, commenters believed that, regardless of when an [IRA owner] died, the 10-year rule would operate like the 5-year rule, under which there would not be any RMD due for a calendar year until the last year of the ...10-year period...Commenters in those situations who are heirs or beneficiaries of individuals who died in 2020 explained that they did not take an RMD in 2021 and are unsure of whether they would be required to take an RMD in 2022. Commenters asserted that, if final regulations adopt the interpretation of the 10-year rule set forth in the proposed regulations, the Treasury Department and the IRS should provide transition relief for failure to take distributions that are RMDs due in 2021 or 2022...

IV. Guidance for Certain RMDs for 2021 and 2022

...

B. Guidance for certain taxpayers who did not take a specified RMD

To the extent a taxpayer did not take a specified RMD ... the IRS will not assert that an excise tax is due under section 4974.