The IRS announced transition relief for plan administrators, payors, plan participants, IRA owners, and beneficiaries in connection with the change to the required beginning date for required minimum distributions (RMDs) under Code Sec. 401(a)(9) and pursuant to the SECURE 2.0 Act of 2022 (P.L. 117-328). The transition relief extends the deadline to roll over certain distributions that were mischaracterized as RMDs and allows beneficiaries under the 10-year rule to avoid taking an RMD in 2023. In addition, the IRS announced that final regulations related to RMDs will apply for calendar years beginning no earlier than 2024.
Required Beginning Date
The required beginning date for an employee or IRA owner is April 1 of the calendar year after the calendar year in which the individual attains the applicable age. The SECURE 2.0 Act changed the applicable age from 72 to either age 73 or age 75, depending on the taxpayer’s date of birth. As a result, IRA owners who turn 72 in 2023 will not have an RMD in 2023. Following enactment of the SECURE 2.0 Act, plan administrators and other payors indicated that automated payment systems would need to be updated to reflect the change in the required beginning date. As a result, some plan participants and IRA owners who take a distribution in 2023 may have those distributions mischaracterized as RMDs and therefore ineligible for rollover.
The IRS granted relief to relating to 2023 distributions that were mischaracterized as RMDs due to the change in the required beginning date from age 72 to 73. Under this guidance, a payor or plan administrator will not be considered to have failed to satisfy the requirements of Code Secs. 401(a)(31), 402(f), and 3405(c) merely because of a failure to treat these distributions as eligible rollover distributions. This relief applies with respect to any distribution made from a plan between January 1, 2023, and July 31, 2023, to a participant born in 1951 (or that participant’s surviving spouse) that would have been an RMD but for the change in the required beginning date under the SECURE 2.0 Act.
60-Day Rollover Deadline Extended
The IRS extended the 60-day rollover period for 2023 distributions mischaracterized as RMDs to September 30, 2023. Thus, if a taxpayer who was born in 1951 received a single-sum distribution between January 1, 2023, and July 31, 2023, part of which was treated as ineligible for rollover because it was mischaracterized as an RMD, that taxpayer will have until September 30, 2023, to roll over that mischaracterized part of the distribution.
The extension of the 60-day rollover period also applies to mischaracterized IRA distributions made to an IRA owner or the IRA owner’s surviving spouse. This rollover is permitted even if the IRA owner or surviving spouse has rolled over a distribution within the last twelve months. However, making such a rollover of the portion of an IRA distribution mischaracterized as an RMD would preclude the IRA owner or surviving spouse from rolling over a distribution in the next twelve months.
Specified RMDs for 2023
A defined contribution plan will not be treated as having failed to satisfy Code Sec. 401(a)(9) for failing to make an RMD in 2023 that would have been required under the proposed regulations. Proposed regulations would interpret the 10-year rule to require the beneficiary of an employee who died after his required beginning date to take an annual RMD beginning in the first calendar year after the employee’s death. This aspect of the 10-year rule differs from the old 5-year rule, which required no RMD until the end of the 5-year period. Thus, the IRS provided transition relief for 2021, 2022, and now 2023. The relief also applies to an individual who would have been liable for an excise tax under Code Sec. 4974.
