Debate: Are the new RMD regulations for successor beneficiaries too complex?

The new RMD regulations proposed by the IRS under the Every Community Establishment for (Secure) Retirement Enhancement Act brings a new twist to successor beneficiaries – those who inherit a retirement account from a beneficiary of the original owner.

if the original beneficiary of the account was subject to the Secure Act requirement to empty the account within 10 years, the successor must continue to receive distributions within the same 10-year window. If the original beneficiary was an eligible named beneficiary using the life expectancy method of distributions, the successor beneficiary gets a new 10-year distribution window.

An original beneficiary using the 10-year distribution window must take annual RMDs if the original account holder died after the required start date. If the original account holder died before the required start date, no annual RMD is required and the beneficiary can choose to withdraw the entire account balance as a lump sum in the 10th year.

This same rule dictates whether the successor beneficiary will be required to take annual RMDs after the successor inherits the original beneficiary’s account. In other words, the distribution obligations of the successor beneficiary do not depend on the RMD obligations of the original beneficiary, but rather depend on the RMD obligations of the original account holder.

We asked two ALM professors and authors Tax facts with opposing political viewpoints to share their opinions on the proposed new RMD rules for successor beneficiaries.

Here is a summary of the debate that ensued between the two professors.

Their votes:



Their reasons:

Byrne: The challenges and controversy surrounding the new RMD rule for successor beneficiaries of retirement accounts are a bit overstated. Yes, the new rule may be inconvenient in some situations, but the main challenge is with record keeping, not the fairness of the rule itself.

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