The IRS recently announced some important transition relief for plan administrators, payors, and retirees concerning required minimum distributions (RMDs) under the SECURE 2.0 Act of 2022. Here’s what this means for you and your retirement savings.
What’s the Required Beginning Date?
The required beginning date for an employee or IRA owner to begin taking RMDs used to be at age 72. However, under the SECURE 2.0 Act, it is now either age 73 or age 75, depending on the taxpayer’s date of birth. This means that if you turn 72 in 2023, you won’t have to take an RMD that year. But here’s where the transition relief comes in.
Transition Relief for Mischaracterized Distributions
Due to the change in the required beginning date, some distributions made in 2023 may be mistakenly categorized as RMDs and, therefore, ineligible for rollover. The IRS is granting relief for this situation, so payors and plan administrators won’t be penalized for mischaracterized distributions. This applies to distributions made from a plan between January 1, 2023, and July 31, 2023, to a participant born in 1951 (or their surviving spouse), which would have been an RMD if not for the change in the required beginning date.
Extended Rollover Deadline
If you received a distribution between January 1, 2023, and July 31, 2023, that was mischaracterized as an RMD, don’t worry: The IRS has extended the 60-day rollover period for these distributions until September 30, 2023. This means you have a little more time to roll over the mischaracterized part of the distribution and avoid any penalties.
What About Specified RMDs?
For defined contribution plans, not making an RMD in 2023 that would have been required under the proposed regulations won’t result in any penalties. Proposed regulations interpret the 10-year rule differently from the old 5-year rule, so transition relief was provided for 2021, 2022, and now 2023. This relief also applies to individuals who would have been liable for an excise tax under Code Sec. 4974.
If you’re planning for retirement and navigating RMDs, this transition relief announcement is essential to understand. It provides some flexibility for retirees and their financial planning during these changing times. Reach out to us with questions and to ensure you’re making the most of these opportunities and avoiding any pitfalls.