Staying up-to-date with retirement account regulations is crucial, especially when it comes to inherited IRAs. With the IRS issuing new guidance for 2025, understanding these updates is vital for beneficiaries to avoid penalties, particularly for those confused by Required Minimum Distributions (RMDs).

The SECURE Act of 2019 & 10-Year Rule

The SECURE Act of 2019 introduced the 10-year rule, mandating that most non-spouse beneficiaries must withdraw the entire balance of an inherited IRA within 10 years. Initially, it was believed that these distributions could be deferred until the 10th year. However, the IRS later clarified that if the original owner had already begun taking RMDs, annual withdrawals were necessary. This change created significant confusion, and the 2025 update aims to clarify future distributions.

Relief for Missed RMDs (2021-2024)

In response to the confusion, the IRS issued Notice 2024-35, offering temporary relief for beneficiaries who missed RMDs from 2021-2024. This relief applies solely to IRAs inherited from account holders who had already started RMDs.

New RMD Rule for 2025

Beginning January 1, 2025, waivers for missed RMDs will no longer be available. It becomes essential for beneficiaries to plan for and meet annual withdrawal requirements to ensure compliance and avoid penalties.

Who Is Exempt from the SECURE Act Withdrawal Rule?

Certain groups remain unaffected by the 10-year rule, including surviving spouses, minor children under 21, individuals with disabilities or chronic illness, non-designated beneficiaries (such as charities or estates), and accounts inherited before 2020.

Understanding these 2025 changes is urgent. Beneficiaries should review their withdrawal plans and consider consulting a financial advisor to ensure compliance with the latest requirements.