Last month, the IRS issued Notice 2023-54, providing transition relief for certain required minimum distributions (RMDs) made, or to be made, for 2023. This relief is similar to that previously provided for 2021 and 2022 RMDs [see previous blog post].
The new guidance offers relief for certain participants who reached age 72 in 2023 (i.e., were born in 1951). The SECURE 2.0 Act of 2022 increased the RMD age from 72 to 73 starting on January 1, 2023. However, the law was passed at the very end of 2022, thus plan sponsors and providers may not have had sufficient advance notification to make changes to their operations and systems, causing RMDs to be made when they were not required. For distributions made between January 1, 2023, and July 31, 2023, to these affected participants, the IRS will not penalize responsible parties (plan administrators, payors, plan participants, IRA owners, and beneficiaries) who processed distributions as RMDs ineligible for rollover, when the distributions were not, in fact, RMDs because of the change in the RMD age. This relief also applies to distributions from IRAs made between January 1, 2023, and July 31, 2023, that were mistakenly treated as RMDs. These improperly treated distributions may be rolled over tax-free to a qualified retirement account or IRA by September 30, 2023, effectively extending the 60-day deadline for rollovers of certain distributions.
Additionally, the new guidance offers transition relief related to the 10-year rule introduced by the SECURE Act of 2019. The 10-year rule applies to beneficiaries who did not qualify as an Eligible Designated Beneficiary and requires that the remaining account be distributed within 10 years of the participant’s death. Many practitioners interpreted this rule in a similar manner to the 5-year rule that previously applied, which only required the entire account be distributed within five years and did not require annual RMDs. However, the IRS clarified in the proposed regulations issued in February 2022 that RMDs under the 10-year rule must be made yearly in addition to the entire account being distributed within ten years.
The IRS will not find any qualification failure or assess an excise tax for failure to make certain life expectancy RMDs in 2023 under the 10-year rule to beneficiaries of participants who died on or after their required beginning date in 2020, 2021, or 2022. The IRS had previously provided relief for failure to make these RMDs for 2021 and 2022.
Lastly, the new guidance clarifies that any final regulations implementing the RMD changes of the SECURE Act and SECURE 2.0 will apply for 2024 or later calendar years.
If you have any questions about RMDs or how this relief may apply to you or your plan, please contact a Boutwell Fay attorney or email us at attorneys@boutwellfay.com.