RMDs

November 22, 2022

IRS Grants Relief from Proposed Required Minimum Distributions Regulations

By Stuart R. Josephs, CPA
IRS Notice 2022-53 (IRB 2022-44, Oct. 31, 2022)}, released Oct. 7, 2022, announced that the Treasury Department and the IRS intend to issue final regulations regarding RMDs under IRC Sec. 401(a)(9) that will apply not earlier than the 2023 distribution calendar year. This notice also provides favorable guidance on certain Sec. 401(a)(9) provisions that apply for 2021 and 2022.

Background
Sec. 401(a)(9)(A)(ii) provides that an employee’s entire interest in a qualified retirement plan must be distributed, beginning not later than the employee’s required beginning date over the employee’s life or over the lives of the employee and a designated beneficiary (or over a period not extending beyond the employee’s and designated beneficiary’s life expectancy).

Sec. 401(a)(9)(B)(i) provides that, if the employee dies after distributions began, the employee’s remaining interest must be distributed at least as rapidly as under the distribution method the employee used as of the date of the employee’s death.

Sec. 401(a)(9)(B)(ii) and (iii) provide that, if the employee dies before RMDs began, the employee’s interest must either be distributed:
  • Within five years after the employee’s death (five-year rule); or
  • Over the designated beneficiary’s life or life expectancy with distributions beginning later than one year after the employee’s death—subject to an exception in Sec. 401(a)(9)(B)(iv) if the designated beneficiary is the employee’s surviving spouse.

Sec. 401(a)(9)’s rules are incorporated by reference for other retirement plans.

New 10-year Rule 
The 2019 Secure Act added Sec. 401(a)(9)(H). Generally, under Sec. 401(a)(9)(H)(i), if an employee in a defined contribution plan has a designated beneficiary, the five-year rule is replaced with a 10-year rule—which applies regardless of whether the employee dies before the required beginning date.

Also, under  Sec. 401(a)(9)(H)(ii), the exception to the five-year rule, now replaced by the 10-year rule, applies only if the designated beneficiary is an eligible designated beneficiary [defined in Sec. 
401(a)(9)(E)(ii)].

Sec. 401(a)(9)(H)(iii) provides that when an eligible designated beneficiary dies before that individual’s portion of the employee’s interest in the plan has been distributed, the eligible designated beneficiary’s beneficiary will be subject to a requirement that the remainder of that individual’s portion be distributed within 10 years of the eligible designated beneficiary’s death.
Sec. 401(a)(9)(H) generally applies to distributions regarding employees dying after 2019. If the employee died before 2020 and the employee’s designated beneficiary died after 2019, this beneficiary is treated as an eligible designated beneficiary and Sec. 401(a)(9)(H) applies to that designated beneficiary’s beneficiary.

Proposed Regs
Under Regs. proposed Feb. 24, 2022, final RMD regs. would apply beginning with the 2022 distribution calendar year. Under Proposed Regs. Sec. 1.401(a)(9)-5(d)(1)(i), if an employee dies on or after the employee’s required beginning date, distributions to the employee’s beneficiaries after the employee’s death must satisfy Sec. 401(a)(9)(B)(i) and (ii) or (iii) [if applicable, taking into account Sec. 401(a)(9)(E)((iii), (H)(ii) and (iii)].

Final Regs.’ Applicability Date 
Final regs. concerning RMDs under Sec. 401(a)(9) and related provisions will apply not earlier than the 2023 distribution calendar year.

Guidance for Certain 2021 & 2022 RMDs 
If a taxpayer did not take a specified RMD, defined below, the IRS will not assert that the Sec. 4974 50-percent excise tax is due. If the taxpayer paid this tax for a missed 2021 specified RMD, a refund can be requested.

A defined contribution plan failing to make a specified RMD will not be treated as failing to satisfy Sec. 401(a)(9) merely because it did not make that distribution.

Specified RMD  
Only for Notice 2022-53 purposes, a specified RMD is any distribution that, under the Proposed Regs.’ interpretation, would be required to be made in 2021 or 2022 under a defined contribution plan or IRA, subject to Sec. 401(a)(9)(H)’s rules, for the year in which the employee or designated beneficiary died—if that payment would be required to be made to:
  • An employee’s or IRA owner’s designated beneficiary if the employee or IRA owner died in 2020 or 2021 and on or after the relevant required beginning date; and this beneficiary is not taking lifetime or life expectancy payments; or
  • An eligible designated beneficiary’s beneficiary if the eligible designated beneficiary died in 2020 or 2021; and that eligible designated beneficiary was taking lifetime or life expectancy payments.
Stuart R. Josephs, CPA has a San Diego-based Tax Assistance Practice that specializes in assisting practitioners in resolving their clients’ tax questions and problems. Josephs is immediate past chair of the Federal Subcommittee of CalCPA’s Committee on Taxation.

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