The SECURE 2.0 Act of 2022 included some changes that are about to impact required minimum distribution (RMD) requirements. To explain the changes and reduce taxpayer confusion, below we explain the changes in the RMDs for certain retirement plans and individual retirement accounts (IRAs) included in IRS Notice 2023-54.
What Changed?
- Change in RMD Age: A significant change introduced by the SECURE 2.0 Act is the age at which RMDs must begin. For IRA owners who turn 72 after December 31, 2022, and 73 before January 1, 2033, the new required RMD start date is April 1 of the year following the year you turn 73, a year later than dictated in the previous rule. This adjustment means that IRA owners who turn 72 in 2023 will not have an RMD due for 2023, effectively delaying their first RMD to April 1, 2025.
- RMD Transition Relief: A plan administrator won’t be considered in violation of the new rules for failing to treat certain distributions as eligible for rollover. This applies to distributions made from January 1 to July 31, 2023, to participants born in 1951 (or their surviving spouse). Additionally, there’s an extension of the 60-day rollover period for certain distributions to September 30, 2023.
- Specific RMD Guidance for 2023: The IRS provided detailed RMD guidance for 2023 to assist plan sponsors achieve compliance. For example, defined contribution plans that failed to make a specified RMD won’t be treated as having failed to satisfy the updated requirements simply because the distribution wasn’t completed. Also, taxpayers who didn’t take a specified RMD will not be subject to an excise tax.
- Applicability and Effective Period: The notice affects plan administrators, payors, plan participants, IRA owners, and beneficiaries and should be used to determine RMDs starting on or after January 1, 2024.
Weren’t There Previous Changes to Beneficiary RMDs?
Yes. As you may remember, there were also changes impacting beneficiary RMDs in the initial SECURE Act, removing the “stretch option,” and requiring non-spouse beneficiaries to take distributions over a more compressed 10-year time frame. The shortened distribution period can result in increased income tax liabilities and even push recipients into higher tax brackets.
These changes highlight the importance of proactive tax and estate planning, and the need for retirement account owners to evaluate their strategies to ensure they meet their long-term goals and protect their beneficiaries. If you have questions or want to discuss your specific situation, we are happy to schedule a call and help.