William Byrnes' Tax, Wealth, and Risk Intelligence

William Byrnes (Texas A&M) tax & compliance articles

TaxFacts Intelligence: Required Minimum Distribution Regs Explained and Analyzed

Posted by William Byrnes on April 7, 2022

The Texas A&M graduate program for tax, wealth, and risk management is accepting applications from financial professionals with at least five years of industry experience for the summer. Even though our graduate program has grown to over 750 enrollment, the enrollment for a course section is between 20 and the maximum of 30 so that each student receives meaningful feedback throughout the course from the full-time academic faculty and renowned professional case study leaders, and each other via teamwork and peer review. Learn more about how we educate and position the industry’s leaders: https://law.tamu.edu/distance-education

Prof. William H. Byrnes         Robert Bloink, J.D., LL.M.

The IRS has released long-anticipated proposed regulations on changes made to the required minimum distribution rules under the SECURE Act.  The proposed regs contained a few surprises that will impact any client who inherits a retirement account–especially those who have inherited an account from an individual who was already taking RMDs.  The regulations are detailed, and it is very possible that they will be modified in response to comments, which are due by May 25, 2022. 

IRS Releases Proposed Regulations on SECURE Act RMD Changes.  The IRS released proposed regulations on changes to the required minimum distribution (RMD) rules effective beginning in 2020.  In a surprise move, the regulations require most designated beneficiaries to take annual RMDs within the ten-year distribution period if the original account owner died after the required beginning date (the SECURE Act is silent with respect to whether annual distributions are required).  However, the IRS has yet to release guidance for clients who inherited accounts after the SECURE Act’s effective date and before the regulations were issued.  In other words, they don’t address whether a client may be required to take a retroactive RMD for 2021.  The proposed regulations themselves are effective January 1, 2022 (the existing regulations must be applied for 2021).  For more information on the RMD rules that apply after an account owner’s death, visit Tax Facts Online.  Read More 

IRS Proposed RMD Regs Clarify Eligible Designated Beneficiary Definitions.  The proposed regulations also clarify a few points with respect to the new definition of “eligible designated beneficiary”.  An eligible designated beneficiary is entitled to continue using the life expectancy distribution method even post-SECURE Act.  Under the proposed regulations, the “age of majority” for eligible designated beneficiaries who are minor children is age 21 (many expected that an age 18 limit would apply).  Defined benefit plans that use the definition of “age of majority” under the existing regulations can continue to do so (meaning that those plans can treat a child as being under the age of majority if that child has not completed a course of education and is under age 26).  Spousal beneficiaries will also be required to elect to treat the deceased spouse’s IRA as their own by the later of (1) December 31 of the year following the year of the owner’s death or (2) age 72.  Additionally, the regulations propose a rule that would treat an account owner as having no eligible designated beneficiary if the owner has multiple designated beneficiaries and one of those beneficiaries is not an eligible designated beneficiary.  In situations involving multiple designated beneficiaries, the life expectancy of the oldest beneficiary will be used (under prior regulations, the shortest life expectancy was used).  For more information on the RMD rules, visit Tax Facts Online.  Read More

Post-SECURE Act Guidance on Trusts as Inherited Account Beneficiaries.  Under the general rule for employees dying on or after January 1, 2020, beneficiaries of a trust may be treated as having been designated as beneficiaries of the employee under a qualified plan for purposes of determining the period over which RMDs must be made.   Beneficiaries of a see-through trust can continue to be treated as designated beneficiaries under regulations proposed in 2022.  The regulations continue to apply the requirement that the trust beneficiaries be identifiable.  Beneficiaries of a valid see-through trust will be taken into account if they could receive amounts in the trust representing the participant’s interest in the retirement plan that are not contingent upon, or delayed until, the death of another trust beneficiary who predeceases the plan participant.  Those beneficiaries with only remote interests will be disregarded.  For more information on the rules governing see-through trust beneficiaries, visit Tax Facts Online. Read More 

Look in your Tax Facts Online app for our continuing analysis of 2022 legislative and regulatory updates, weekly intelligence, and the impact on planning for a client’s wealth preservation and growth.

Wealth & Risk Management Degree for Industry Professionals – learn about the graduate degree here: https://law.tamu.edu/distance-education

Texas A&M, operating budget of $9.6 billion (FY2022) and capital budget of $1.9 billion, is #1 for U.S. public universities, one of only 60 accredited U.S. universities of the American Association of Universities (R1: Doctoral Universities – Highest Research Activity) and one of only 17 U.S. universities that hold the triple U.S. federal grant of Land, Sea, and Space! The law school, ranked in the 1st tier, has the #1 bar passage in Texas, and #1 for employment in Texas (and top 10 in U.S.)

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: