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LEARNING RESOURCE

Personal Retirement Investments, Income and WHEN SHOULD RMDs BEGIN?
Expenses
When to start beneficiary distributions is a critical
In this four-part, three-hour narrated PowerPoint aspect of your advice to the client. The SECURE
video, Tom Tillery examines personal retirement Act hastened distribution requirements in many
savings vehicles, including IRAs and other retirement
plans. Social Security, Medicare and Medicaid, cases. Failure to start RMDs at the correct time
and retirement income and expenses will also be could result in excise taxes levied on the missed
considered. distributions. Prior to Dec. 31, 2022, this excise
tax was 50% of a missed distribution. SECURE
CPE SELF-STUDY 2.0 reduced the excise tax to 25% beginning Jan.
1, 2023, and further reduced the penalty to 10% if
For more information or to make a purchase, go to aicpa.org/cpe-learning the missed RMD is corrected in a timely manner.
or call the Institute at 888-777-7077. If RMDs have begun for the owner:
■ The owner’s RMD must still be taken in the
year in which the IRA owner died.
■ If the owner was required to take an RMD
but did not, the beneficiary needs to take the
rule reasserts itself for the next beneficiary or current-year RMD before doing anything else
beneficiaries, even if they are also eligible desig- with the rest of the funds. An owner’s RMD
nated beneficiaries. made after death will be reported on the
beneficiary’s income tax return.
WHO IS THE BENEFICIARY? ■ There is one exception: If the IRA owner died
Ask these questions when a client tells you they before April 1 of the year after the year the
inherited an IRA: owner reached the required beginning date for
■ “Who died?” RMDs, the heir or heirs do not need to take
■ “When did the IRA owner die?” the RMD.
■ “How old was the deceased?” ■ Beneficiaries must take RMDs each year if
The spouse of the account owner has more the owner had begun RMDs, and they must
distribution options than nonspouse beneficiaries. empty the account based on their beneficiary
Nonspouse beneficiaries may be subject to differ- designation.
ent rules depending on their own circumstances If RMDs have not begun:
and whether other beneficiaries are named. Ben- ■ A spouse may treat the account as his or her
eficiary designations can be changed if planning is own; RMDs begin when the spouse reaches the
done in a timely manner. required beginning date.
A designated beneficiary (as distinct from an ■ Nonspouses must take RMDs immediately,
eligible designated beneficiary) is an individual based on their beneficiary designation, and
who is designated as the beneficiary of an IRA. In must empty the account within 10 years (unless
order to be a designated beneficiary, an individual they meet an exception).
must be a beneficiary at the date of the IRA ■ Nondesignated beneficiaries (trusts, estates,
owner’s death who remains a beneficiary as of Sept. and charitable organizations) must empty the
30 of the year following the IRA owner’s death. account with five years.
Any beneficiary who is “eliminated” by distribu-
tion of that beneficiary’s benefit or by disclaimer EFFECTIVE DATES AND TRANSITION RULES
is disregarded in determining the designated When the SECURE Act was introduced, it
beneficiary for the purposes of calculating an generated confusion among advisers concerning
RMD (Regs. Sec. 1.401(a)(9)-4, Q&A-4(a)). the application of the new rules. Some thought
Additionally, a decedent’s individual account the act’s language suggested that the 10-year rule
can be divided into separate accounts with would operate like the five-year rule, i.e., that
different beneficiaries to allow the RMD to be there was no RMD due for a calendar year until
calculated by disregarding the beneficiaries of the the last year of the 10-year period following the
other separate accounts. The deadline to establish death of the IRA owner.
separate accounts is no later than the end of the In Notice 2022-53, released Oct. 17, 2022, the
year following the year of the IRA owner’s death IRS announced forthcoming final regulations,
(Regs. Sec. 1.401(a)(9)-8, Q&A-2(a)). clarifying that the SECURE Act requires payouts

12 | Journal of Accountancy April 2023