Staying informed about retirement account rules is crucial in avoiding unnecessary penalties, especially when it comes to Required Minimum Distributions (RMDs) and inherited IRAs. For non-spouse beneficiaries, understanding these complexities can be challenging. The IRS has issued new guidance for 2025, clearing up previous confusion and providing a roadmap for compliance.

The SECURE Act of 2019 & 10-Year Rule

The SECURE Act of 2019 significantly altered how most non-spouse beneficiaries manage inherited retirement accounts. The primary change was the 10-year rule, which mandates that the entire balance of an inherited IRA must be withdrawn within ten years. Initially, many believed that distributions could be postponed until the tenth year, creating a misconception that later needed clarification.

The IRS subsequently stated that if the original owner had already begun taking RMDs, annual withdrawals must continue. This created substantial confusion which persisted until the recent update. With the 2025 IRS guidance, the way forward becomes clearer, impacting future distribution strategies.

Relief for Missed RMDs (2021-2024)

Recognizing the chaos of recent years, the IRS issued Notice 2024-35, offering temporary relief for missed RMDs from 2021-2024. This notice specifically applies to IRAs inherited from account holders who had already started their RMDs.

New RMD Rule for 2025

Effective January 1, 2025, the IRS will no longer offer waivers for missed RMDs. Beneficiaries must plan to meet annual withdrawal requirements to avoid penalties. It becomes critical for individuals to adjust their strategies accordingly and ensure compliance with the updated rules.

Who Is Exempt from the SECURE Act Withdrawal Rule?

While the 10-year rule affects most non-spouse beneficiaries, several groups remain exempt:

• Surviving spouses
• Minor children (under 21)
• Individuals with disabilities or chronic illness
• Non-designated beneficiaries (such as charities or estates)
• Accounts inherited before 2020

The impending changes for 2025 emphasize the urgency of understanding these rules. Beneficiaries should review their withdrawal plans and consider consulting a financial advisor to ensure they are aligned with the current regulations, minimizing the risk of incurring penalties in the future.