IRS Notice 2023-54 (IRB 2023-31, July 31, 2023) provides transition relief concerning the change in the required beginning date (RBD) for required minimum distributions (RMDs) under IRC Sec. 401(a)(9) pursuant to Section 107 of the 2022 SECURE 2.0 Act (the “Act”), enacted Dec. 29, 2022.
Sec 401(a)(9) requires qualified retirement plans to make minimum distributions starting by the RBD, as well as minimum distributions to beneficiaries if the employee dies before the RBD.
Individual retirement accounts and annuities (IRAs) described in Sec. 408(a) and (b), annuity contracts, custodial accounts and retirement income accounts described in Sec 403(b), and eligible deferred compensation plans under Sec. 457(b) also are subject to Sec. 401(a)(9)’s rules.
RBD: Act Section 107 amended Sec. 401(a)(9) to change the RBD for qualified retirement plans under Sec. 401(a) and other eligible retirement plans including IRAs.
Instead of defining the RBD by reference to April 1 of the calendar year following the calendar year in which the individual attains age 72, the new RBD for an employee or IRA owner is defined by reference to April 1 of the calendar year after the calendar year in which the individual attains the applicable age—which is either 73 or 75, depending on the individual’s birth date.
RMD Distribution Period: Sec. 401(a)(9) provides rules for RMDs from a qualified plan during the employee’s life in Sec. 401(a)(9)(A) and after the employee’s death in Sec. 401(a)(9)(B). In addition to prescribing an RBD for distributions, these rules set forth the period over which the employee’s entire interest must be distributed.
Sec. 401(a)(9)(A)(ii) provides that an employee’s entire interest in a qualified plan must be distributed beginning not later than the employee’s RBD, in accordance with regs., over the employee’s life or over the lives of the employee and a designated beneficiary (or over a period not extending beyond the life expectancy of the employee and a designated beneficiary).
Under Sec. 401(a)(9)(B)(i), if the employee dies after distributions began, the employee’s remaining interest must be distributed at least as rapidly as under the method of distributions the employee used under Sec. 401(a)(9)(A)(ii) 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 be distributed:
Within five years after the employee’s death (five-year rule); or
Over the designated beneficiary’s life or life expectancy (in accordance with regs.) with distributions beginning not 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.
New 10-Year Rule: The Act added Sec. 401(a)((9)(H) which replaced the five-year rule with a 10-year rule. Regs. proposed Feb. 24, 2022, deal with the 10-year rule and, when finalized, would apply beginning with the 2022 calendar year. This new 10-year rule and these proposed regs also were discussed in IRS Notice 2022-53 and were covered in the December 2022 California CPA’s Fed Tax column, Page 29.
Eligible Rollover Distributions: Notice 2023-54 also discusses rules pertaining to these distributions.
Final Regs.’ Applicability Date
Final regs. regarding RMDs under Sec. 401(a)(9) and related provisions will apply for calendar years beginning not earlier than 2024.
Guidance for Specified RMDs for 2023
A defined contribution plan that failed to make a specified RMD, defined below, will not be treated as failing to satisfy Sec. 401(a)(9) merely because it did not make that distribution.
If a taxpayer did not take a specified RMD, the IRS will not assert that the Sec. 4974 25-percent excise tax is due. If a failure to take an RMD is corrected by the end of the correction window (generally, the end of the second year beginning after the year of the missed RMD), this tax is reduced to 10 percent.
Specified RMD: For Notice 2023-54 purposes, a specified RMD is any distribution that under the Proposed Regs.’ interpretation would be required to be made in 2023 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:
A. An employee’s or IRA owner’s designated beneficiary if:
The employee or IRA owner died in 2020, 2021 or 2022, and on or after the employee’s or IRA owner’s RBD; and
The beneficiary is not using the lifetime or life expectancy payments exception under Sec. 401(a)(9)(B)(iii); or
B. An eligible designated beneficiary’s beneficiary if:
The eligible designated beneficiary died in 2020, 2021 or 2022; and
That beneficiary was using the lifetime or life expectancy payments exception.
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, a past chair of the CalCPA Committee on Taxation’s Federal Subcommittee.