In the ever-evolving landscape of retirement planning, staying informed about the rules governing retirement accounts is essential. This is especially true when it comes to Required Minimum Distributions (RMDs) for inherited IRAs, a topic that has perplexed many non-spouse beneficiaries over recent years. In 2025, the IRS has issued new guidance that could have significant implications for those inheriting retirement accounts. Understanding these changes is crucial to avoiding penalties.

The SECURE Act of 2019 & 10-Year Rule

The SECURE Act of 2019 brought a fundamental change to how non-spouse beneficiaries handle inherited IRAs. Most non-spouse beneficiaries are required to fully withdraw the balance of an inherited IRA within 10 years of the original owner's death. Initially, many assumed that withdrawals could be deferred until the end of the 10th year. However, the IRS later clarified that if the original owner had already commenced RMDs, annual withdrawals would be necessary. This unexpected requirement created confusion among beneficiaries, which the new 2025 update aims to address.

Relief for Missed RMDs (2021-2024)

The IRS Notice 2024-35 provides temporary relief for those who failed to take RMDs from 2021 to 2024. This relief applies exclusively to IRAs inherited from account holders who had already begun RMDs. This policy offers a reprieve to many beneficiaries who may have been at risk of penalties due to the confusion surrounding the distribution requirements.

New RMD Rule for 2025

Effective January 1, 2025, the temporary waiver for missed RMDs will no longer be available. Beneficiaries must plan accordingly to meet annual withdrawal requirements to remain compliant with IRS regulations. Proper planning will be crucial to avoid the penalties associated with missed RMDs.

Who Is Exempt from the SECURE Act Withdrawal Rule?

Certain groups are exempt from the 10-year rule. These include surviving spouses, minor children (under 21), individuals with disabilities or chronic illness, non-designated beneficiaries such as charities or estates, and accounts inherited before 2020. Understanding whether you fall into one of these categories is vital for managing your inherited IRA.

As 2025 approaches, understanding the changes in RMD rules is more important than ever. Beneficiaries should review their withdrawal plans and seek guidance from a financial advisor to ensure compliance with the updated regulations. Making informed decisions now can prevent costly penalties in the future.