Weighing in on disputed language in IRS 10-year RMD rule

Here's an update to my earlier article on IRS’s interpretation of how the SECURE Act 10-year rule will work for beneficiaries of individual retirement accounts. I am now 100% convinced that the idea of annual required minimum distributions under the 10-year rule was an IRS error that will soon be corrected. As of this writing, IRS has still not officially said this publicly or corrected the publication, but some sources have said that IRS officials have told them this privately.

The concept of annual required minimum distributions under the 10-year rule didn’t appear until the latest version of IRS Publication 590-B, “Distributions from Individual Retirement Arrangements (IRAs),” which came out in March.

On Page 12, the publication states with an example that under the 10-year rule, there would be RMDs for years one through nine, before complete depletion at the end of the 10-year post-death period. No one believes that to be correct, including many experts we have contacted on this.

In fact, on that same page in the publication, the IRS directly contradicts itself with this statement: “No table. Don't use any of the tables if either the 5-year rule or the 10-year rule (discussed earlier) applies.”

That statement is the correct one, showing that the 10-year rule will work the same way as the five-year rule, where no distributions are required until the end of the five- or 10-year term.

The “No table” line from page 12 adds to the case that both of these rules are treated the same — requiring no annual RMDs. The entire amount must be withdrawn only by the end of the five- or 10-year term. There is a direct contradiction here which convinces me that the idea of annual RMDs under the 10-year rule is just one big mistake that needs to be corrected. The example on Page 12 is wrong!

In fact, even the actual text of the SECURE Act (which is the law) implies that both the five- and 10-year rules work the same way. In the SECURE Act, the 10-year rule is referenced, stating that the 10-year rule “shall be applied by substituting ’10 years’ for ‘five years.’”

Other experts and colleagues of mine agree that this is an error in the IRS publication.

In the May 2021 issue of Ed Slott’s IRA Advisor newsletter, IRA authority Natalie Choate, an attorney with the Boston law firm Nutter McClennen & Fish, stated that “Publication 590-B is not consistent about how the 10-year rule works. The SECURE Act appears to simply adopt the 5-year rule, the operation of which is already well established via IRS regulations — namely, no distributions are required until the final year."

Publication 590-B seems to recognize that fact in some places. That said, Choate goes on to mention the example on Page 12 that indicates annual RMDs will be needed throughout the 10-year period.

“It is copied word for word from prior editions of Publication 590-B, with just the years changed,” she says.  “This example seems to state that annual minimum distributions are required for a son who inherited his father's IRA in 2020. In other words, in this example, nothing at all has changed since 2019! I think it is just a mistake and blame it on COVID-19.”

IRA expert Robert Keebler, who heads Keebler & Associates, a tax advisory and CPA firm in Green Bay, Wisconsin, agrees. “It is difficult to see the support for the publication’s position that designated beneficiaries need to combine the life expectancy rule with the 10-year rule. The statutory guidance appears to indicate that a taxpayer holding an inherited IRA simply needs to take out 100% of the funds by the end of the tenth year following death.”

Bottom line: I believe this will be corrected by IRS to show that the 10-year rule means no required distributions until the end of the 10-year post-death period, and no RMDs will be required for years one through nine. However, RMDs can be taken voluntarily by beneficiaries at any time within the 10 years based on their own tax situations. Once again — stay tuned!

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