The U.S. Internal Revenue Service (IRS) recently issued Notice 2022-53 (Notice), announcing its intention to issue final regulations related to required minimum distributions (RMDs) that will take effect no earlier than the 2023 distribution calendar year. The Notice also provides relief related to certain provisions of Internal Revenue Code Section 401(a)(9), governing RMDs from a tax-qualified plan such as a 401(k) plan, that apply for 2021 and 2022.
Background
The rules in Section 401(a)(9) set forth a required beginning date for distributions and identify the period over which the employee’s entire retirement account must be distributed. The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) made changes to the RMD requirements for defined contribution plans that apply to certain beneficiaries. A significant change included imposing a requirement for an individual beneficiary who is not an “eligible designated beneficiary” and who inherits after 2019, that payout of the entire retirement account generally must occur within 10 years, rather than five years, following the year in which the participant, or his or her designated beneficiary, dies (10-year rule). In February 2022 the IRS issued proposed regulations that many commentators argued were a significant departure from prior rules and therefore created the potential for retroactive violations of the RMD rules.
What You Need to Know
- Final Regulations Effective No Sooner Than 2023
On February 24, 2022, the IRS issued a Proposed Rule addressing these RMD requirements for qualified plans as amended by the SECURE Act. The Proposed Rule had originally specified that these regulations, when finalized, would apply beginning with the 2022 distribution calendar year. Taking into account commenters’ feedback, the IRS determined that final regulations regarding RMDs under Section 401(a)(9) and related provisions will apply no earlier than the 2023 distribution calendar year.
- RMDs in 2021 and 2022
The Notice also provided some of the transition relief requested by commenters, confirming that a defined contribution plan that failed to make a “specified RMD” (a certain type of RMD that would otherwise have been required in 2021 or 2022, as described in the Notice) will not be treated as having failed to satisfy Section 401(a)(9) because it did not make that distribution. In addition, taxpayers who did not take a specified RMD will not be subject to the 50% excise tax for a missed RMD that would otherwise have been due. If the taxpayer has already paid an excise tax for a missed specified RMD in 2021, the taxpayer may request a refund of that excise tax.
- Plan Amendments Not Due Until 2025
Plan sponsors have until December 31, 2025, to implement the SECURE Act changes so will want to wait for additional IRS guidance regarding these rules prior to adopting plan amendments intended to comply with the SECURE Act RMD rules.
Knowledge Management Lawyer Katie Dean contributed to this Sidley Update.
