Inherited IRA RMD Rules
If you inherited an IRA from a parent or loved one after 2019, there is a statistically significant chance your wealth advisor is currently giving you bad advice.
The industry is currently grappling with a “silent crisis” regarding Inherited IRA RMD rules. Clients are walking into their CPA’s office expecting a clean tax return, only to find out they’ve missed mandatory distributions, triggered excise tax penalties, and spiked their Adjusted Gross Income (AGI) into a higher bracket.
The culprit? A lethal combination of the SECURE Act, shifting IRS interpretations, and a “grace period” that just slammed shut.
The “10-Year Rule” is Not a 10-Year Holiday
When the SECURE Act passed in 2019, it effectively killed the “Stretch IRA.” Most non-spouse beneficiaries (children, grandchildren, etc.) were moved to a 10-Year Rule, requiring the account to be fully depleted by December 31st of the tenth year following the owner’s death.
Many advisors made a dangerous assumption: “If I have ten years to empty the bucket, I can just wait until year ten to take the money.”
They were wrong.
The ALAR Rule: Why Age Matters
The IRS applies the “At Least As Rapidly” (ALAR) rule. If the original owner had already reached their Required Beginning Date (RBD)—the age where they must start taking RMDs—the beneficiary cannot simply pause those distributions.
If your benefactor was already taking RMDs (as was the case in a recent client scenario where the father passed at age 93), you must take annual RMDs in years one through nine, then empty the remainder in year ten.
The End of IRS Forgiveness (2021–2024)
Because the IRS was slow to finalize these regulations, they issued a series of waivers that protected taxpayers from the 25% excise tax penalty for missed RMDs. You can review the transition relief in the following official notices:
- IRS Notice 2022-53: Initial relief for missed 2021 and 2022 RMDs.
- IRS Notice 2023-54: Extension of relief through 2023.
- IRS Notice 2024-35: The final “grace period” for the 2024 tax year.
The Warning: That era of “automatic forgiveness” ended on December 31, 2024.
As of 2025, the IRS has signaled a “Hard Start.” If you missed your 2025 distribution because your advisor was still operating on 2021 logic, you are now officially in the penalty zone.
The “Doubling Up” Disaster: Why This Matters Today
When an RMD is missed, the correction creates a “tax snowball” effect. If you missed your 2025 RMD and take it in 2026 to satisfy the requirement:
- Double Taxation Year: You will report both the 2025 corrective distribution and the scheduled 2026 distribution on a single return.
- AGI Inflation: This spike in income can phase you out of credits (like the Premium Tax Credit), increase your Medicare premiums (IRMAA), and push you into a higher federal tax bracket.
- The Penalty Fight: To avoid the 25% penalty, we must file IRS Form 5329 and argue “Reasonable Cause.” Relying on a wealth advisor’s incorrect interpretation of the SECURE Act is often our strongest lever, but it is a defensive move that no high-net-worth individual wants to be forced to make.
Convergence: Integrating Tax and Wealth Strategy
This is a classic example of why tax planning cannot be “siloed” from wealth management. A wealth advisor focuses on the 10-year growth; a Tax Architect focuses on the annual liability. At Arrache Private Client, we bridge that gap.
We look at the LP/GP dynamics of your entire portfolio, ensuring that a missed $50,000 RMD doesn’t trigger a chain reaction that costs you $100,000 in lost credits and penalties.
Immediate Action Items:
- Audit your Inherited IRAs: Check the date of death and the age of the decedent.
- Verify the 1099-R: If you didn’t receive one and the owner was over age 73, you likely have a reporting gap.
- Course Correct: If a miss occurred, take the distribution immediately and document the “Reasonable Cause” for the Form 5329 filing.
Stop guessing on SECURE Act compliance. If your advisor hasn’t mentioned the “At Least As Rapidly” rule, you’re at risk.
About the Author
Michael R. Arrache, CPA & Realtor® Michael R. Arrache is a dual-licensed specialist who sits at the intersection of tax architecture and real estate acquisition. As a Certified Public Accountant (CPA) and Enrolled Agent (EA) with over 15 years of experience, Michael has spent his career advising high-net-worth individuals and business owners on how to maximize profit while surgically excising tax burdens.
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