IRS Announces RMD Transition Relief

The SECURE Act 2.0 called for several changes to be made to retirement plans to facilitate broader access and additional retirement saving opportunities. These include the introduction of new distribution types for personal emergencies and victims of domestic abuse, changes to how catch-up contribution amounts are calculated, and changes to Required Minimum Distribution (RMD) requirements. Although there is a 5-year phase in period, the RMD changes went into effect at the start of 2023.This triggered the need for guidance on how regulators will handle non-compliance. The IRS recently issued Notice 2023.-54 which provides guidance on common RMD issues. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.

RMD Transition Relief

One of the key changes in the SECURE Act 2.0 was a change to the beginning date on which a participant must start taking RMDs. Section 107 increased the RMD age from 72 to 73 starting in 2023 and then again to 75 in 2033. A key concern expressed by plan administrators is that more time is needed to update systems to comply with the change. Systems not updated could result in situations where participants and IRA owners that would have been required to start taking RMDs and distributions could have them improperly classified as RMDs. This would make the amounts ineligible for rollover.

The final regulations address this issue by providing two important updates. First, a plan administrator will not be considered in violation of Section 107 simply because of a failure to treat certain distributions as eligible rollover distributions. It is important to note this applies to any distributions made between January 1^st and July 31^st, 2023, to participants born in 1951 (or surviving spouse) that would have otherwise been required to take an RMD.

There is also an extension of the 60-day rollover period for certain distributions to September 30, 2023.  This means that if a participant who was born in 1951 and received a single distribution in January 2023, a portion of which as ineligible for rollover due to mischaracterization, the participant will have until September 30^th to roll over the mischaracterized portion of the distribution.

Specific RMD Guidance for 2023

The IRS also provided specific RMD guidance for 2023 to help guide plan sponsors to compliance under a variety of situations, including:

• Defined contribution plans that did not make a specified RMD – A defined contribution plans that failed to make a specified RMD will not be treated as failing to have satisfied the updated requirements simply because the distribution was not completed.
• Taxpayers who did not take a specified RMD – Taxpayers that did not take a specified RMD will not be subject to an excise tax.
• Specified RMD Definition – It is defined as any distribution, under the interpretation in the proposed regulations, which would have been required to be made under a defined contribution or IRA for the year in which the participant (or surviving beneficiary) required to be made to:
  • A designated beneficiary if the employee (or IRA owner) died in 2020, 2021, or 2022, and on or after the employees’ required beginning date, and the designated beneficiary is not leveraging the lifetime or life expectancy payment exemption approach.
  • A beneficiary of an eligible designated beneficiary if the eligible individual died in 2020, 2021, or 2022, and were using the life or lifetime expectancy payment approach.

Effective Period

The IRS and Treasury confirmed these final regulations, and others published on the same topic, should be used for purposes of determining RMDs prior to January 1^st, 2024.

Contact Us

The recently issued final regulations provides plan administrators and others with important guidance on how the IRS intends to issues arising from RMD errors. Atlanta plan administrators need to carefully review RMDs made in 2023 to ensure compliance. If you have questions about the information outlined above or need assistance with your next benefit plan audit, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.