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Retired Military Finances 201: IRS Issues New Guidance on RMDs Thumbnail

Retired Military Finances 201: IRS Issues New Guidance on RMDs

Retirement Funding Taxes

A lot of retired Senior Military Officers and NCOs find themselves in the situation where they have inherited an IRA. In the good old days, you could take distributions, called Required Minimum Distributions (RMD), from those IRAs based on your life expectancy. More often than not, that meant your tax bill would be lower than if you had to take the distributions out faster.

That all changed in 2019 when the SECURE Act was signed. The Secure Act went into effect on 1 Jan 2020, and it changed the calculations for RMDs. Under the SECURE Act many individuals that inherit an IRA will have to empty it out in 10 years (spouses are a notable exception).

Many of us in the industry took Congress at their word and concluded that, if you wanted to, you could wait until the 10th year to take any money out. In Feb 22, the IRS put out proposed regulations that stated that you must take out RMDs based on the individual who inherited the IRA's life expectancy AND empty it out by the 10-year point.

That caused a fair bit of confusion. Did that mean that those who didn't take distributions in 2021 (the first year RMDs would be required for someone who inherited an IRA in 2020) were subject to the 50% excise tax for failing to take the RMD? What should we do about 2022? As 2022 comes to a close, the regulations are still proposed, and it doesn't look like they will become actual regulations before the end of the year.

In IRS Notice 2022-53 the IRS provided guidance. They stated that the excise tax does not apply for 2021 and 2022. That means there isn't really a downside to not taking the RMD (especially from a Roth account) unless delaying will increase your future taxes or Medicare premiums. It appears that the proposed regulations will go into effect in 2023 and you will have to take RMDs and empty the account out in 10 years.

Military Finances are Different

While dealing with RMDs applies to all taxpayers that isn't always the case. Active Duty and Retired Senior Military Officers and NCOs have unique tax benefits and financial issues civilians don't have. That's why we think you should work with a financial planner or advisor that deals with military and veteran tax and financial issues each and every day. If you'd like to find out how we do things, use the button below to schedule a free initial consultation.

If found this article useful, you might like the following blog posts:

Retired Military Finances 401: Stretching an Inherited IRA with a CRUT

Is Your Retirement More Secure?

Military Finances 301: Timing Inherited IRA Distributions After the SECURE Act

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