New Steering Clarifies RMDs for Inherited IRAs

John Grobe

In a recent article, we looked at the fact that the newest issuance of IRS Publication 590-B runs counter to how the accounting profession had been interpreting the new rules on inherited IRAs that were promulgated by the Tax Cuts and Jobs Act (TCJA). Up until the March 25th issuance of the revised 590-B, the interpretation of TCJA that was followed by accounting and tax professionals was that non-eligible designated beneficiaries did not have to take required minimum distributions from inherited, IRAs but had to empty out the entire inherited IRA within 10 years.

The new Publication 590-B, however, says that non-eligible designated beneficiaries must take RMDs and empty out the IRA within 10 years. A non-eligible designated beneficiary is, with few exceptions, a non-spousal beneficiary; spousal beneficiaries may stretch the inherited IRA our over their life expectancy but are required to take annual RMDs. This is what is often called the “stretch IRA”.

Hopefully the IRS will clarify what is going on before the end of the year, so that non-eligible designated beneficiaries will know what to do. However, for the time being, the IRS itself has argued in court (and won) that you rely on advice in IRS Publications at your peril. Yes, that’s true; the IRS says you can’t rely on what they say in their instructional publications!

That IRS publications are not considered to be primary authority in tax matters brings to mind something Marvin Gaye once sang on Inner City Blues: “Oh, make me wanna holler and throw up both my hands.”

The only authoritative sources of tax law are official statutes, regulations, and judicial decisions. Along with many other sources that we might consider authoritative, IRS publications are considered to be secondary authority.

Seven years ago, in another case dealing with IRAs and Publication 590 (which had not yet been divided into sections A and B), the IRS argued, and the Tax Court ruled that only one 60-day rollover could be taken per year from all of your aggregated IRAs. This ran counter to a long-standing IRS position that one 60-day rolloverr could be taken annually from each one of a person’s IRAs. The court reached this decision by reviewing the language of the Internal Revenue Code.

The IRS has put taxpayers into the ultimate “damned if you do, damned if you don’t” position. If taxpayers rely on the plain language of IRS publications, they still might lose their case. Sounds like the Twilight Zone to me.

On another note, does saving for your children’s education get in the way of your retirement savings goals? If so, why not try to fund college the same way you fund your retirement – a bit at a time over a long period of time. When your child is born, open up a 529 plan and fund it with monthly contributions direct debited from your checking account. That’ll give you 18 years’ worth of savings by the time your child is ready for college. All states have 529 plans and many of the plans give a break on state income taxes.

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