Brenda Vingiello, Sand Hill’s Chief Investment Officer, joined Squawk Box to discuss her thoughts on the latest market trends and market outlook for 2025. This
Another Update to Inherited IRA Distribution Rules
Published Date : October 30, 2023
Normally a dry and straightforward topic, inherited IRA rules have been anything but over the last several years due to a number of recent changes to the SECURE Act of 2019. As a result of legislative changes (and the government’s need for tax revenue), there are now significant differences between non-spouse inherited IRA accounts inherited before and after January 1, 2020.
The Setting Every Community Up for Retirement Enhancement (or SECURE) Act of 2019 created a new 10-year rule that would require a non-spouse inheriting an IRA after 1/1/2020 to fully distribute the balance (all subject to ordinary income tax) within 10 years. Pre-2020 inherited IRA distributions will continue to be based on the life expectancy of the beneficiary.
To provide an example, if you inherited an IRA from a parent who passed away in 2020, as a non-spouse beneficiary, the deadline to take a full distribution is December 31, 2030. This seems pretty straightforward at first blush. However, what the IRS did not specify was when during the 10-year period distributions would be required to start, only the deadline for distributing the entire account. The early guidance allowed planners to customize the 10-year strategy for each participant, such as taking distributions in later years—when earned income isn’t contributing to a larger tax bill—for those on the cusp of retirement.
To further throw a wrench in these rules, the IRS proposed a rule in February 2022 to require owners to take equal periodic distributions during the 10 years. This update greatly complicated the ability for those in high tax brackets to exercise some control over the timing of these distributions. An update later in 2022 bought time for both the IRS to finalize the rules and for participants who had not yet taken distributions. If the original 2020 participant had not taken any distributions yet, they would not be penalized, although the original December 31, 2030 deadline would still apply.
As 2023 began, we expected the IRS would finalize its rules and require participants to take a distribution in 2023. However, this summer the IRS issued yet another update saying there will be no penalty for missed distributions for 2021, 2022, or 2023 (there was no required distribution in 2020 due to COVID). So, the “tax holiday” for non-spouse beneficiaries continues if they want to “let it ride” and enjoy more years of tax-deferred growth on those portfolios. That being said, it could make sense for some beneficiaries to begin withdrawals now, especially if they know a future liquidity event could contribute to a larger tax bill by waiting.
As we approach 2024, we are optimistic for finalized guidance from the IRS and will tailor our advice to clients accordingly. In the meantime, our strategy will be to continue providing updates to our clients as we receive them, and to craft a recommendation based on our knowledge of each client’s unique circumstances. If you have any questions about this topic, feel free to reach out to your Sand Hill Wealth Manager.
Source: www.irs.gov
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Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.
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All video presentations discuss certain investment products and/or securities and are being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect Sand Hill Global Advisor’s (“SHGA”) or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. Any comments, opinions, or recommendations made by any host or other guest not affiliated with SHGA in this video do not necessarily reflect the views of SHGA, and non-SHGA persons appearing in this video do not fall under the supervisory purview of SHGA. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.
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