By Sarah Brenner, JD
Director of Retirement Education
Beneficiaries, including Roth IRA beneficiaries, are subject to required minimum distributions (RMDs). The SECURE Act and SECURE 2.0 have upended these rules and caused significant confusion. Now, many beneficiaries are subject to the 10-year payout rule under the SECURE Act, although some still can use the stretch and take annual RMDs. The responsibility to take the RMD is on the IRA beneficiary, and failure to do so, regardless of whether the 10-year rule or the stretch applies, can result in penalties.
Example 1: Jamie, age 53, inherited a Roth IRA from his father in 2020. Jamie is subject to the 10-year rule. There are no annual RMDs for Jamie to take, but he will need to empty his inherited Roth IRA by December 31, 2030. Any amount still in the plan at the end of 2030 will be the RMD for that year. Any funds not distributed by December 31, 2030, will be subject to penalty.
Example 2: Jorge had a traditional IRA and named his sister, Lucy, two years his junior, as beneficiary. Lucy is an eligible designated beneficiary (EDB) because she is not more than ten years younger than Jorge. Jorge passed away in 2026 at age 70 before he was scheduled to begin RMDs. That means Lucy, age 68 in the year of Jorge’s death, does not need to worry about taking a 2026 year-of-death RMD for Jorge. However, Lucy will have to take an annual RMD based on her single life expectancy starting in 2027. She must then take an RMD every year thereafter. Missing any of these annual RMDs will subject Lucy to penalty. (As an alternative to taking stretch RMDs, Lucy could use the 10-year rule. In that case, the entire inherited IRA would have to be emptied by 12/31/36 to avoid penalty, but no annual RMDs are required in years 1-9 of the 10-year period because Jorge had not yet reached his RBD.)
While some beneficiaries are told about RMDs in the wake of an IRA owner’s death, few IRA custodians follow up diligently to make sure the RMD is in fact taken. The tax code is clear. The responsibility to identify the RMD amount and take it ultimately falls on the beneficiary. It is the IRA beneficiary who will be facing IRS penalties when missed RMDs happen.
If you have technical questions you would like to have answered, be sure to submit them to mailbag@irahelp.com, to be answered on an upcoming Slott Report Mailbag, published every Thursday.
https://irahelp.com/ira-beneficiaries-and-missed-rmds/