IRS Announces Targeted RMD Relief

The U.S. Treasury’s proposed Setting Every Community Up for Retirement Enhancement (SECURE) Act regulations issued in February 2022 have caused some confusion.

The wealth management industry understood the act’s 10-year distribution rule to operate like the longstanding five-year rule. We expected beneficiaries subject to the rule would be required to withdraw all funds in an inherited individual retirement account (IRA) or retirement plan by year-end following the tenth anniversary of the account owner’s death. The industry did not expect annual required minimum distributions (RMDs) to be required for any living beneficiary subject to the 10-year rule.

Contrary to industry expectations, the Treasury’s proposed regulations interpreted the rule to require certain beneficiaries of deceased account owners who had reached their required beginning date (RBD) for RMDs to:

► Deplete their account by year-end following the tenth anniversary of the account owner’s death and

► Take annual distributions based on their single life expectancy, under the “at least as rapidly” requirement.

In response to the uncertainty, the IRS issued taxpayer-friendly relief in October 2022 to address the “at least as rapidly” 10-year RMD rule for 2021 and 2022. In essence:

• The proposed regulations are ineffective for this type of RMD before 2023.
• For missed 2021 and 2022 RMDs, no distributions or other corrective actions are required.
• Beneficiaries who did not take this type of 2021 or 2022 RMD will not owe the 50% excise tax penalty on any missed RMD.
• Unlike the CARES Act 2020 RMD waiver, the IRS did not grant relief in the form of allowing a taxpayer to return such 2021 or 2022 RMDs actually withdrawn. Taxpayers who took such 2021 or 2022 RMDs and paid excise taxes may request a refund for the excise taxes paid.

The IRS needs time to resolve the contradictions and questions. Unfortunately, we do not yet know how this rule will apply after 2022.

New Legislation Impacts Qualified Retirement Plans and IRAs

On December 29, 2022, President Biden signed SECURE Act 2.0 into law. Among numerous and generally taxpayer-friendly provisions, SECURE Act 2.0 increases the ages at which IRA owners and plan participants must begin withdrawing required minimum distributions (RMDs) from their traditional IRAs and retirement plans. Effective as of January 1, 2023, the required beginning date (RBD) increased from age 72 to age 73. For taxpayers attaining age 72 and expecting to take their first RMDs in 2023, RMDs now will not start until 2024.

Sheri Gronhovd Schrock
SVP/Chief Fiduciary Officer & Fiduciary Legal Counsel

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