Status of IRS pub 590-B in light of IRS Notice 2022-53 - rules for distributions from Inherited IRAs

[ira_query]

When I read IRS pub 590-B just now, it says that an individual designated beneficiary who is not an eligible designated beneficiary who has inherited a Traditional IRA from an account owner who died in 2021 after beginning their RMDs, is subject only to the 10-year rule, and that was my understanding when I inherited this IRA in 2021. I took the owner's RMD in 2021, but I did not take any distribution in 2022 (for me, the numbers worked out better with zero distributions in 2022 and 2023.) Now I find out that IRS Notice 2022-53 changed the rules! I see there's no penalty for no 2022 distribution, but apparently I need to take a RMD for 2023? But what's the deal with conflicting information on the IRS website? Why has IRS pub 590-B not been updated yet to reflect the new rule? Is Notice 2022-53 still a "proposed" regulation while apparently certain to be implemented?

[dmertz · Accepted solution]

IRS Notice 2023-54 grants the same relief for 2023 RMDs.

IRS publications are often not updated timely, especially when the regulations have not been finalized as in this case.

Be careful that by pushing distributions into the future you don't end up with larger distributions that push more income into a higher tax bracket, particularly in year 10 when everything that remains in your inherited  IRA must be distributed under the 10-year rule.  Also, unless there is new legislation that changes it, the tax rates are scheduled to return to their previous levels in 2026 where what is now the 22% tax bracket will become the 25% tax bracket.

[ira_query]

Thanks very much. Sorry, I see now the link for IRS notice 2023-54, apparently waiving the requirement for 2023. 

[fanfare]

When you are subject to the 10-year liquidation rule for newly inherited IRAs,
to spread the tax impact most evenly over the ten years, and regardless of the Year-End Value,
your divisor should be :10,9,8 . . . 2, 1
OR,    11 - N where N is the number of the distribution year. (Beneficiary RMDs start in the year after the year of death)

if the owner died in 2020, the beneficiary would have to fully distribute the plan by December 31, 2030. which is the tenth distribution year.
The portion to distribute is 1 / 1 or 100%.

In the eighth year you would take out one third of the IRA, there being three years to go.
If you are a young beneficiary, or even not so young, this rule would generate much larger distributions than the RMD based on Pub590B formulas.

At a very high age, the Pub590B formula will overtake this calculation and require a larger RMD in the beginning.

@ira_query 

[tax_computation]

The owner died in 2021 and I knew then I'd need to distribute the entire balance by December 31, 2031.  People enrolled in ACA Marketplace Health plans at (somewhat) higher incomes pay an additional income tax amounting to 8.5% of their income for those years they are enrolled. I did the right thing. Spreadsheet was accurate. No distributions while enrolled in ACA. I appreciate the info here about changing tax rates in the future and I'll continue to run those numbers. But the basic plan was even distributions except for 2022 and 2023. I still think that's best. I'm glad to learn I have the choice of whether or not to take a distribution for 2023, but if I do, it'll have to get past that ACA test also.

[tax_computation]

software changed the id, but I am the OP on this thread...

[fanfare]

"But the basic plan was even distributions"

The rule I posted results in even distributions when the IRA does not experience growth through compounding or investment profits.

@tax_computation