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IRS Waives 2024 RMD Penalty for IRA Beneficiaries Under 10-Year Rule Thumbnail

IRS Waives 2024 RMD Penalty for IRA Beneficiaries Under 10-Year Rule

In this video, Tim dives deep into the latest IRS guidelines regarding RMDs for inherited IRAs, particularly in light of changes introduced by the SECURE Act of 2020.

He clarifies the ongoing complexities of RMD rules, highlighting the IRS's recent decision to waive penalties for failing to take RMDs from inherited IRAs under the 10-year payout rule for the fourth consecutive year.

He explains who qualifies for this waiver, the specifics of the 10-year rule, and provide insights on why, despite the waiver, you might still consider withdrawing from your inherited IRA to optimize your tax situation.


A few weeks ago, I made a video discussing Required Minimum Distribution (RMD) rules for inherited IRAs received from someone who passed away in or after 2020, because the SECURE Act in 2020 changed the rules moving forward. As often happens with our tax code, the rules are about as clear as mud, and the IRS offers us band-aids until they decide to make the rules clear, which sometimes takes years. 

For the fourth year in a row, the IRS has provided relief on the excise tax (penalty) for required minimum distributions for beneficiaries of individual retirement accounts (IRAs) subject to the 10-year payout rule. This means you do not have to take an RMD, or the IRS “excuses” the RMD for IRA beneficiaries that are or were subject to annual RMDs within the 10-year period, because now there is no penalty or “excise tax”.

Now, it’s important to note that this only applies to beneficiaries of inherited IRAs, also called beneficiary IRAs, and only to those who were required to take annual RMDs under the 10-year payout. This has nothing to do with your own traditional IRAs and any rules or RMDs required for those accounts. 

Let me say that again, this has nothing to do with your own traditional IRA accounts. This only applies to IRAs that you inherited from someone else.

The SECURE Act for Inherited IRAs

The original SECURE Act, which took effect in 2020, eliminated the stretch IRA for most IRA and Roth IRA beneficiaries and replaced it with a 10-year rule. And that 10-year rule requires the entire inherited IRA balance to be withdrawn by the end of the 10th year after the death of the original owner, if you are a “designated beneficiary”.

However, and this is where it gets confusing, the IRS proposed regulations in February 2022 that added a second requirement for beneficiaries who inherit IRAs from those who died after reaching their required beginning date, or RBD, for taking RMDs. The IRS said this group of beneficiaries also must take annual RMDs for years 1-9 of the 10-year term.

So, in other words, if the original IRA owner had started taking RMDs, then the "designated beneficiary” would have had to also take RMDs in years 1-9 before taking the remaining funds out in year 10.

RMD Relief

Who qualifies for RMD relief?

Recognizing the confusion, the IRS, for the fourth straight year, has waived RMDs by saying there will be no penalty for failing to take them. This new relief stacks on to relief for 2021, 2022, 2023, and now for 2024.

So, as of 2024, there have been no RMDs required from any inherited IRAs since the new 10-year rule started in 2020, and there won’t be until at least 2025.

Who doesn't qualify for RMD relief?

Who doesn’t get RMD relief? Well, the new IRS relief does not apply to RMDs for beneficiaries who inherited an IRA before 2020 because those beneficiaries are grandfathered into the pre-SECURE Act rules, which allow any designated beneficiary to do the stretch IRA.

Eligible Designated Beneficiaries

Also note, this new IRA relief of the penalty for 2024 does not apply to “eligible designated beneficiaries” who still qualify for the stretch IRA and aren’t subject to the 10-year rule in the first place.

To refresh, there are five types of “eligible designated beneficiaries”:

  • Surviving spouses, most common 
  • Minor children of the account owner, until age 21 
  • Disabled or chronically ill individuals 
  • Any individuals older than, or not more than 10 years younger than, the IRA owner 


Also, this change does not apply to inherited Roth IRA beneficiaries subject to the 10-year rule, because inherited Roth IRAs are not subject to RMDs for years 1-9 of the 10-year term.

This is largely because Roth IRAs have no lifetime RMDs, so they never reach the required beginning date in the first place.

Waiver of Penalty vs. Waiver of RMD

You may have noticed that I’m calling it a waiver or relief of the penalty or excise tax, and not a waiver of the RMD itself. The distinction between the two is that if it were a full waiver of the RMD, then the 10-year rule would be pushed back a year, and you would have a full ten years starting in 2025, if it applies to you.

But this is not the case, it is just a waiver of the penalty or “excise tax,” so if you are subject to the 10-year rule, the start date for your 10 years remains the same. That has not changed with this new IRS relief.

Tax Planning Considerations

Now, even though the IRS has provided this RMD penalty relief, you still need to be aware of your tax liabilities and do some long-term tax planning. If your inherited IRA has a sizable amount of money in it, it’s probably going to be best to space out and fill up lower income tax brackets each year over the ten-year period, even if you don’t have to.

Why is that? Well, let’s say you inherit $500,000 in an inherited IRA. And let’s say you don’t touch it and just leave it invested and let it ride, because you don’t need it right now anyway. Well, let’s say that $500,000 grows to $1,000,000 10 years down the road, and now you have to take it all at once, because your 10 years are up.

Now you’re going to have $1,000,000 in ordinary taxable income, and this is going to stack on top of whatever your regular earnings are, and you’ll be stuck with a huge tax bill.

So, it’s highly likely that even though RMDs are not required in 2024, you’ll want to withdraw at least some money from your inherited IRA to smooth out and lower your lifetime tax liability. 

However, if you retire in the last few years of your 10 years, and have a much lower income, you can take larger RMDs at that time. 

Roth IRA conversions

This is another strong case for Roth IRA conversions for not only the original IRA owner, but also your kids or legacy, unless you want you or your kids to pay Uncle Sam more taxes than necessary.

Also, our tax rates are as low as they’ve been in about 100 years, and unless Congress acts, rates will go back up in 2026, when the Tax Cuts and Jobs Act (TCJA) sunsets.

Now, the IRS says that final regulations are coming soon, and they will be effective starting in 2025. This means that it’s possible these final regulations will be issued later this year, but who knows?  

Bottom Line 

At least the IRS recognizes how confusing the inherited IRA beneficiary RMD rules are and gave us a break for the fourth year in a row. If you are affected by this, you will certainly want to implement a long-term plan for taking tax efficient RMDs to minimize your lifetime tax liabilities.

A CERTIFIED financial planner™ professional can help you plan for your retirement. Schedule a call today so we can talk about your situation. 

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