Trust This. Inherited IRA Rules — New Foreclosure Protections — Market Updates

1 big thing: IRS Clarifies Inherited Retirement Account Rule

At last, the IRS has finalized a rule that requires people who inherit retirement accounts to withdraw a minimum amount (RMD) each year.

At issue: The 2019 law gave individuals who inherit an IRA or 401(k) up to 10 years to withdraw all the money. It didn’t specify whether they also had to withdraw some of the money each year during that period.

• Baffled heirs have been asking the IRS to clarify this point, and now it has.

Why it matters: If you inherit a retirement account:

• You must begin taking annual withdrawals in 2025, and

• You must remove all the money and close the account within 10 years of inheriting it

Who’s on the hook: The new guidance applies to anyone who inherited a retirement account in 2020 or after.

Spouses are exempt from the rule, but other heirs (children, grandchildren, siblings, etc.) are not

• Spouses: You’re not totally off the hook; other rules apply to you.

Another exception: The IRS withdrawals rule also doesn’t apply if the original owner of the account died before the required distributions kicked in (age 73). In that case, their heir can take withdrawals at any time during the 10-year period.

• Yes, but: If they were required to take withdrawals, the heir must take annual payouts starting the year after the account owner’s death.

• No penalties for heirs caught in Limbo: The IRS won’t penalize heirs who failed to withdraw funds between 2021 and 2024, the period when no one was sure what the requirement was.

• Now: There’s no Limbo and no excuse. Start the annual withdrawals.

And beware of future penalties: While Congress recently cut the penalty for missed withdrawals in half, it’s still 25%.

No extensions! It’s important to note that even though the IRS won’t assess penalties from missed withdrawals over the past few years, the overall 10-year period to make all withdrawals was not extended.

The bottom line: With the latest IRS guidance, retirement account heirs can and must determine the most tax-advantageous way to schedule withdrawals to avoid both tax penalties and a hefty tax bill at the end of 10 years.

2. Proposed Rule Changes Help Avoid Foreclosure

Newly proposed Consumer Financial Protection Bureau (CFPB) rules would offer several protections for borrowers to help them avoid foreclosure.

Why it matters: Fewer mortgage defaults mean fewer foreclosures, which would help bolster the mortgage market moving forward.

Ch-ch-ch-changes: If finalized, the new rules would do three major things:

1. Require mortgage services to try to help borrowers before moving to foreclosure

2. Streamline paperwork requirements, giving servicers more flexibility

3. Improve servicer and borrower communications

Foreclosures are a last resort: The new rules would allow servicers to move to foreclosure only in cases where:

• All possible avenues of assistance have been exhausted —or—

• The borrower has stopped communicating with the servicer

Speeding up the process: Servicers would be limited in the fees they can charge a borrower while they’re reviewing possible avenues of mortgage assistance — incentivizing servicers to move faster.

Better communications: The new rules include considerations designed to ensure borrowers understand their options:

• Borrowers could request mortgage assistance materials in the same language as the marketing materials they originally received

• Servicers would have to make an interpreter available in telephone calls with borrowers

• Notices to borrowers would have to be specifically tailored to the recipient

Streamlined paperwork: The proposed rules would allow servicers to review options individually, even if an application isn’t yet complete.

Small servicers would be exempt from the new rules. They also do not apply to business-purpose loans.

September 9: This is the deadline for the public to submit comments on the proposed rule changes.

The bottom line: Larger mortgage servicers should monitor these potential CFPB rule changes, as they could affect their usual foreclosure practices.

What happens when a land trust has been dissolved or terminated and then gets sued? That’s the question I’m answering in this week’s Trust This episode of “Ask Joe Anything.”

Listen in or watch on your favorite streaming platform.

3. Catch up fast

1. Why are rich millennials and Z-Gen’s still renting instead of buying? MPA Mag

2. It’s $1 million for a “starter” home in 237 cities nationwide now. The Title Report

3. US pending home sales rise for first time in three months. Blooomberg (gift link)

4. Number of underwater mortgages in the U.S. is at a 5-year low. Bloomberg (gift link)

5. The Fed left its base rate alone again this month, but hinted that a cut could be coming (most economists expect a cut in September, and the markets are already pricing in a cut). HousingWire

4. Closing Thought

Great Leaders Foster Creativity and Energy in Employees

Why it matters: Creativity and energy in the workplace are crucial for innovation and growth. Leaders play a pivotal role in cultivating an environment where employees feel motivated to learn and try new methods.

The big picture: Effective leaders recognize that fostering creativity and energy is not a one-time effort but an ongoing commitment. They can inspire their teams to push boundaries and achieve more by setting the right tone and providing continuous support.

How it works:

• Encouraging risk-taking: Leaders must create a safe environment where employees feel comfortable taking risks without fear of failure. This involves celebrating innovative ideas and learning from unsuccessful attempts.

• Providing autonomy: Allowing employees to explore and experiment with their ideas can lead to significant breakthroughs. Leaders should set clear goals but allow flexibility in how those goals are achieved.

• Offering continuous learning opportunities: Access to training, workshops, and resources helps employees stay updated with the latest trends and techniques. Leaders should promote a culture of lifelong learning and provide the necessary tools for skill development.

Between the lines:

• Modeling curiosity: Leaders who demonstrate a passion for learning and curiosity about new methods set a powerful example. Their enthusiasm can be contagious, motivating employees to adopt a similar mindset.

• Fostering collaboration: Collaboration can spark creativity by bringing diverse perspectives together. Leaders should encourage teamwork and create opportunities for cross-functional projects.

What’s next: Organizations led by creative and energetic leaders are better equipped to adapt to changes and seize new opportunities. Leaders can drive sustained growth and success by continually fostering an innovative environment.

The bottom line: Great leaders understand that creativity and energy are the lifeblood of an organization’s growth. By encouraging risk-taking, providing autonomy, promoting continuous learning, modeling curiosity, and fostering collaboration, they can inspire their teams to reach new heights.

Go deeper:

1. “The Role of Leadership in Fostering Creativity and Innovation” – Cave Leadership Development Center

2. “Inspiring Innovation” – Harvard Business Review

3. “How to Build a Culture of Learning” – Forbes

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