If you inherited an IRA from someone other than your spouse, required minimum distributions (RMDs) must be withdrawn from the IRA in 2025 and future years, if the original account owner had already begun taking RMDs before their death. Failing to take these required annual distributions can result in significant IRS penalties.
The SECURE Act of 2019 introduced the 10-year withdrawal rule, requiring most non-spouse beneficiaries to withdraw the entire balance of an inherited IRA within 10 years of the original owner’s death. Initially, there was confusion on whether annual RMDs were required during these 10 years. The IRS granted relief from penalties for missed RMDs between 2021 and 2024 while clarifying and finalizing the rule. Certain beneficiaries continue to quality for exceptions to the 10-year withdrawal rule, including surviving spouses, minor children (under 21), disabled or chronically ill beneficiaries, and certain other eligible designated beneficiaries.
There are several key changes for 2025. Beneficiaries who inherit IRAs from owners who had begun RMDs must start taking annual RMDs during years 1-9 after the owner’s death. The entire inherited IRA balance must be fully distributed by Dec. 31 of year 10. Missing an RMD can result in a 25% penalty on the amount that should have been withdrawn, potentially reduced to 10% if corrected in a timely manner. The penalty may be waived in certain situations by filing Form 5329 with a reasonable explanation.
For more information,
contact cara@mwbpc.com.