Final Regulations Deliver Clarity on 10-Year Rule

With proposed regulations now finalized, investors have clarity on the 10-year rule for inherited retirement accounts.

The IRS recently issued final regulations for the 10-year rule for the distribution of inherited retirement accounts. The long-awaited final regulations essentially retain the proposed rules.

In December 2019, the SECURE Act was signed into law, introducing a new 10-year distribution rule on most non-spouse inherited retirement accounts. The 10-year rule defines the time period for heirs to achieve complete distribution of inherited retirement assets.

The final regulations essentially state that there are two versions of the 10-year rule, depending on the age of the account owner at death.

  • Death before required beginning date (RBD). This is the simple 10-year rule. The account must be fully distributed (at least) by the end of the 10th year following year of death of the owner. No annual distributions are required.
  • Death after RBD. The account still has to be fully distributed by the end of the 10th year, but there must also be (at least) annual distributions which are calculated based on the account beneficiary’s life expectancy.

The RBD is generally April 1 of the year following the calendar year in which the account owner reaches age 73. In the case an account owner passes away after the RBD, designated beneficiaries and eligible designated beneficiaries may also opt to base annual distributions on the remaining life expectancy of the deceased account owner.

Penalty waiver for 2024

Even though the regulations are final, the IRS issued guidance earlier this year stating that there is no penalty for not taking an annual distribution in 2024. This follows similar relief issued by the IRS in 2021, 2022 and 2023.

With the waiver, heirs did not receive “extra years.” Despite the ability to skip annual distributions while proposed regulations were still being considered, heirs were still subject to their original 10-year period.