Does your client have qualified assets? The proposed regulations for post-death distributions from qualified accounts have been published. While proposed regulations are not final, there are areas where planning now may improve options later.
With legislation such as the Setting Every Community Up for Retirement Enhancement (SECURE) Act, regulations typically clarify and define how certain parts of the statute will work. The proposed regulations for post-death distributions from qualified accounts, including Individual Retirement Accounts (IRAs), offer clarification—and a surprise. With comments on the proposed required minimum distribution (RMD) regulations due May 25, 2022, and the public hearing scheduled for June 15, 2022, it is reasonable to expect the final regulations to be published this year. Generally, changes in planning are best made when the regulations are final. But as the proposed RMD regulations are effective January 1, 2022, they may be current planning that will allow additional flexibility later.
There is much to review and consider in the proposed RMD regulations. The good news: The 10-year rule continues to apply to most designated beneficiaries (DBs). But here are several key points that might have an immediate effect.
There is an unanswered question: What about RMDs for 2021? The Coronavirus Aid, Relief, and Economic Security (CARES) Act waived RMDs in 2020. This waiver was not extended for 2021. The proposed RMD regulations do not note whether DBs and some eligible designated beneficiaries (EDBs) will be required to “make up” 2021 RMDs or take some other action. Hopefully, this will be clarified in the final regulations and will include the appropriate process.
The last requirement makes planning easier because the mere potential successor (MPS) rule is dead, and there is now better definition as to how beneficiaries are determined. Concerns regarding powers of appointment, decanting, and reformations are largely resolved.
While the regulations are only in the proposed stage, it might benefit clients to consider some current actions.
One tip: For those DBs or EDBs with accounts affected by ALAR, remember that the regulations are only proposed. Unless funds are needed, it may be best to wait until later in the year to take any distributions as the rules could change!
The proposed RMD regulations are likely to keep most provisions. Clients may want to plan now to allow for more flexibility. Reaching out to clients today will help them have more options in the future.
This material is provided for informational purposes only and should not be construed as investment, tax, or legal advice. Information is based on current laws, which are subject to change at any time. Clients should consult with their accounting or tax professionals for guidance regarding their specific financial situations.
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