Confusion Reigns Supreme with Respect to RMD Rules

John Robinson |

By John H. Robinson, Financial Planner (November 2023)

Every year since COVID-19 (2020) has seen confusion over who is and who isn’t required to take a required minimum distribution.  The CARES Act, which was signed into law on March 27, 2020, waived all RMDs (including IRAs, qualified retirement plans, and inherited retirement accounts)  for the 2020 tax year.  While this seemed straightforward enough, the problem was that it did not address options for repatriation of RMDs for those IRA holders who had taken RMDs at the beginning of the year, prior to the CARES Act.  Shortly after the IRS granted a special rollover provision that permitted tax-free rollovers if the distributed funds were returned to the accounts by August 31, 2020.  This special one-time rollover waived the normal 60-day rollover requirement and extended the allowance to inherited retirement accounts, which do not otherwise permit 60-day rollovers.  My reason for explaining this is to illustrate how even the simplest of rule changes can lead to complicated ramifications.

Was 2021 a Return to RMD Normalcy? No.  Not by a Long shot.

2021 offered another case in point.  In theory, the year represented a return to normalcy, as RMDs for traditional IRAs and RMDs for traditional and Roth qualified retirement accounts were restored.  (Roth IRAs are not subject to RMDs). However, the first wrinkle was caused by the fact that 2021 was the first year in which participants who turned 70 ½ in the calendar year were not required to take RMDs.  This rule change came about through the SECURE Act which passed in December 2019 and became effective on January 1, 2020. Under ACT, the RMD age was raised to age 72 in 2020.  Since the CARES Act waived the RMD in 2020, 2021 was the first year that 72 was the RMD trigger.

2021 was only modestly simpler for inherited retirement accounts.  For taxpayers who inherited retirement accounts prior to 2020, the RMDs for “stretch” IRAs, Roth IRAs, and traditional and Roth retirement accounts were reinstated.   However, per the SECURE Act, all forms of retirement accounts inherited after 2019 were exempt from RMDs and, instead were simply required to be depleted within 10 years of the date of death of the original account holder.


Could The IRS Make These Rules Any More Complicated? Yes, Yes, They Could.

In March 2021, the IRS published an update of its Publication 590-B, “Distributions from Individual Retirement Arrangements (IRAs)” which suggested that RMDs were required in addition to the 10-year depletion rule.   However, a few months later the IRS issued a statement retracting this position.

In February 2022, the IRS issued proposed regulations again requiring annual distributions from certain inherited retirement accounts.  Under this proposal the RMDs on inherited accounts would only apply to retirement accounts in which the original owner had already attained the RMD age. The justification for the rule change given by the IRS was that it was the intention of the SECURE Act to accelerate the payment of tax revenue from retirement accounts, that the loss of existing RMD revenue was an unintended consequence that was overlooked in the drafting of the Act.   However, further adding to the confusion and uproar over this proposal was that the proposal stated that the RMDs would be required for the 2021 and 2022 tax years, even though the 2021 tax year had passed prior to the issuance of the new proposal. 

In October 2022, the IRS issued Notice 2022-53 which officially waived RMDs from inherited retirement accounts for the 2021 and 2022 tax years, and punted the inherited IRA RMD issue to 2023.


Who Must Take RMDs in 2023?

The short answer is only taxpayers who turned 73 or older during the tax year or who inherited a retirement account prior to 2020 must take RMDs in 2023.  2023 saw the IRA RMD age rise from 72 to 73.  Thus, taxpayers who turned 72 in 2023 received a 1-year reprieve thanks to SECURE Act 2.0, which passed in 2022.  An easy way to understand whether you need to take an RMD is that if you were born in 1950 or before, you must take your RMD (unless you participate in a qualified plan (401(k), 403(b), etc.) and qualify for the “still working" exception.)

For the first half of 2023, taxpayers who inherited retirement accounts since 2020 again operated under the IRS’ ongoing threat to impose RMDs on inherited accounts in which the original owner had already attained RMD age at the time of death (with exceptions granted for certain "eligible designated beneficiaries" (EDBs)). However, on July 14, 2023, the IRS issued Notice 2023-54 which both punted any RMD rule changes to 2024 and extended the applicability of any such regs to no sooner than the 2024 tax year.  Notice 2023-54 also granted relief from the 60-day rollover rule to IRA and retirement plan participants who errantly received RMDs based upon their turning age 72 in 2023.

READ:  Ed Slott: RMDs are a Nightmare This year [2023] (Think Advisor)


What’s in store for 2024?

Taxpayers turning 73 or older in 2024 will be required to take distributions from their retirement accounts during the tax year.

Taxpayers who inherited retirement accounts prior to 2020 will still need to take their stretch RMDs.

Here are three remaining questions on which I am awaiting definitive IRS guidance-

  1. Will RMDs be required from taxpayers who inherited retirement accounts from account holders who were younger than the RMD age at the time of death?  (My  expectation is NO.)
  2. Will RMDs be required from taxpayers who inherited retirement accounts from account holders who had attained the RMD age at the time of death? (My expectation is YES)
  3. Will RMDs be required from taxpayers who inherit inherited retirement accounts regardless of the age of the original account owner?  (My guess is YES)


Believe it or not, this perspective is about as simplified as I could make it. Still confused?  Don’t worry – you have plenty of company.   In an upcoming article, I will address the exceptions that apply to the aforementioned RMD rules under the classification of "eligible designated beneficiaries" (EBDs).  



Here’s What to know about 2021 RMDs from Retirement Accounts (CNBC)

[2022] Proposed regs for inherited IRAs bring unwelcome surprises (Elliot Davis Consulting)

SECURE 2.0: IRS Issues New Guidance on RMDs (Trucker & Huss)


John H. Robinson is the owner/founder of Financial Planning Hawaii andFee-Only Planning Hawaii.  He is also a co-founder of fintech software-maker Nest Egg Guru.