The IRS and Treasury have issued final regulations regarding RMDs related to the SECURE Acts.
Today, July 19, 2024, the IRS and Treasury Department released the long-awaited Final provisions to required minimum distributions. RMDs are required annual withdrawals from IRAs, 401(k)s, and other tax-advantaged retirement plans.
The final regulations explain the changes led to by the SECURE Act, which took effect in 2020, and the SECURE 2.0 Act, which took effect in late 2022. The recent rules will take effect on January 1, 2025.
Summary of comments
To get a fast overview, I like to recommend specializing in the 14-page “Summary of Comments and Explanation of Changes.”
10-year rule
One of the questions clarified by the ultimate regulations is whether or not the beneficiary of a person who had already begun taking RMDs (with some exceptions) was required to proceed taking RMDs annually—something that was not covered within the proposed RMD rules for the unique SECURE Act, published in February 2022.
As in IRS Notice 2022-53Many beneficiaries told the IRS they believed that under the SECURE Act, there could be no RMDs for nine years, no matter whether the unique IRA owner took RMDs or not—only the requirement to shut the account within the 10th Year.
According to IRS press release“The Treasury Department and the IRS have determined that the final regulations should retain the provision in the proposed regulations requiring such a beneficiary to continue to receive annual payments.”
Excluded are “eligible named beneficiaries”, defined in IRS Publication 590-B because the IRA owner’s surviving spouse; the IRA owner’s minor child; a disabled or chronically in poor health individual; or every other individual who’s not more than 10 years younger than the IRA owner. Eligible named beneficiaries produce other options for coping with an inherited IRA and will not be limited to the 10-year rule.
What about Roth 401(k)s?
Until Secure 2.0 amended Internal Revenue Code section 402A so as to add a brand new subsection (d)(5), RMDs from a Roth 401(k) were required, regardless that those withdrawals weren’t subject to income tax. Starting in 2024, RMDs from Roth 401(k)s will now not be required.
Born in 1959?
On one other front, a difficulty arose in reference to the SECURE 2.0 Act regarding the age at which one must begin taking RMDs, specifically for those born in 1959. Footnote 7 noted in the ultimate regulation that “Section 107 of the SECURE 2.0 Act contains an ambiguity regarding the definition of the applicable age for employees born in 1959 (section 401(a)(9)(C)(v) provides that the applicable age for such employees is both 73 and 75 years of age).”
A separate announcement of the intended rule-making (REG-103529-23) states that “the applicable age for a worker born in 1959 is 73 years.” A public hearing on this proposed rulemaking is scheduled for September 25, 2024.
A warning note
When it involves RMDs, at all times seek the advice of your tax advisor before taking any motion.
Questions
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