Thursday, August 4, 2022
Many tax professionals believed that the 10-year rule meant that heirs could wait until the tenth year before taking any payouts, however, in February, the IRS issued guidance that requires heirs to take annual withdrawals where the owner died on or after his required date of taking distributions. This new guideline also applies to 401(k)s, however, typically employers have more restrictive payout rules.
Many of those impacted have chosen to avoid the hassle of calculating their life expectancy and taking different distributions over nine years and instead opt to take out one lump sum payment. Kathy Houser of Ann Arbor, Mich., who previously worked as an IT professional, says “I can run a spreadsheet, but even this is making my head spin. It’s asking a lot of taxpayers.”
2021 heirs who have to take their first distribution this year, might benefit from holding off until closer to year-end to see whether the IRS or Congress makes changes to these rules.
For more information:
See Ashley Ebeling “IRS Changes Guidelines for Inherited IRAs, Causing Confusion and Pushback” Wall Street Journal, August 1, 2022.
Special thanks to Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.