Retirement Savings Plans,For Individuals,For Plan Sponsors,Custom

IRS Announces Required Minimum Distribution (RMD) Relief for 2023

July 14, 2023

On July 14, 2023, the IRS released Notice 2023-54 (the “Notice”) to provide relief with respect to certain provisions of the RMD rules of Code section 401(a)(9) that Congress changed as part of the SECURE Act and the SECURE 2.0 Act. Read the Notice.

The Notice does two things:

  • It extends for one year (through 2023) the relief the IRS previously provided in Notice 2022-53 (the “2022 Notice,”) regarding (1) the effective date of final RMD regulations and (2) relief from the IRS interpretation of the “10-year rule” as reflected in the 2022 proposed RMD regulations.
  • It provides relief under the rollover rules for certain distributions made in 2023 that were mischaracterized as RMDs as a result of the change that SECURE 2.0 made to the required beginning date (RBD) for commencing RMDs.

A detailed summary of the extension of relief in the 2022 Notice, prepared by Davis and Harman LLP, is below.

Extension of Relief in the 2022 Notice

(1)       Final RMD regulations – The Notice states that the forthcoming final RMD regulations will apply for calendar years beginning no earlier than 2024. In the 2022 Notice, the IRS had indicated that the final regulations would be effective no earlier than 2023. Thus, the new Notice provides a one-year extension of the relief in the 2022 Notice. 

(2)       10-year rule – The Notice provides a one-year extension (through 2023) of the relief in the 2022 Notice relating to the IRS interpretation of the 10-year rule under the SECURE Act. In that regard, the 2022 proposed RMD regulations interpret the 10-year rule as requiring distributions to continue throughout the 10-year period (1) for any designated beneficiary if the employee dies on or after their RBD, because the “at least as rapidly” rule applies in addition to the 10-year rule in such case, and (2) following the death of an eligible designated beneficiary (EDB) who is “stretching” the benefits they inherited from an employee who died before the RBD. In contrast, many taxpayers thought an alternative interpretation should apply, under which no distributions would be required during the 10-year period, regardless of when or how the 10-year rule is triggered. 

In the 2022 Notice, the IRS provided the following relief for taxpayers and plans that adopted the alternative interpretation of the 10-year rule for 2021 or 2022: (1) a defined contribution plan that failed to make a “specified RMD” would not be treated as having failed to satisfy Code section 401(a)(9) merely because it did not make the required distribution, and (2) to the extent that a taxpayer failed to take a “specified RMD,” the IRS would not impose the excise tax that otherwise applies to RMD failures. The new Notice extends this same relief to plans and taxpayers that adopted the alternative interpretation of the 10-year rule for 2023.

For this purpose, the new Notice defines “specified RMD” almost identically as in the 2022 Notice, except it extends the applicable years to include 2023 RMDs. Specifically, a “specified RMD” is any distribution that, under the proposed regulations’ interpretation of the 10-year rule, would be required to be made in 2021, 2022, or 2023 with respect to individuals described in (a) or (b) below: 

(a)        Beneficiaries of deceased employees – A designated beneficiary of an employee (including an IRA owner) if (i) the employee died in 2020, 2021, or 2022 and on or after the employee’s RBD, and (ii) the beneficiary is not “using the lifetime or life expectancy payments exception under § 401(a)(9)(B)(iii).”

(b)      Beneficiaries of deceased EDBs – A beneficiary of an EDB if (i) the EDB died in 2020, 2021, or 2022, and (ii) that EDB was “using the lifetime or life expectancy payments exception under § 401(a)(9)(B)(iii) of the Code,” i.e., the “stretch” exception. For this purpose, an EDB includes a designated beneficiary who is treated as an EDB pursuant to section 401(b)(5) of the SECURE Act. That section provides that if an employee dies before the effective date of the SECURE Act (generally 1/1/2020, but two years later for governmental and collectively bargained plans), and their designated beneficiary dies on or after that date, the beneficiary is treated as an EDB so that the 10-year rule applies upon their death. Thus, the Notice’s relief applies in cases where the successor to that deceased beneficiary failed to take an RMD in 2021, 2022, or 2023.

Relief Relating to the Required Beginning Date

Section 107 of the SECURE 2.0 Act changed the definition of “required beginning date” to reference the “applicable age” of the employee or IRA owner, which is either 73* or 75 depending on their date of birth. Thus, for example, an individual who was born in 1951 and thus will attain age 72 in 2023 will have an RBD of 4/1/2025, rather than 4/1/2024 as under prior law.

The Notice provides relief with respect to distributions from plans and IRAs that were mischaracterized as RMDs as a result of this change to the definition of RBD. Specifically, with respect to distributions made between Jan. 1 and July 31 of 2023 to a plan participant born in 1951 (or to such a participant’s spouse) who would have been an RMD but for the foregoing change to the RBD, the Notice provides the following relief:

(1)       Eligible rollover distributions – An employer plan or plan administrator will not be treated as failing to satisfy the withholding, direct rollover, or notice requirements relating to eligible rollover distributions (ERDs) merely because of a failure to treat the distributions described above as ERDs.

(2)       Indirect rollovers from employer plans – The Notice extends the 60-day deadline for completing rollovers from employer plans with respect to any distributions described above. The new deadline is Sept. 30, 2023.

(3)       Indirect rollovers from IRAs – The Notice provides IRA owners and surviving spouses with the same extension of the 60-day rollover deadline described above with respect to distributions from IRAs. The Notice also waives the one-rollover-per-year limit on IRA rollovers for any amount described above, meaning the individual gets the benefit of the extension even if they previously rolled over other IRA distributions within the prior 12 months. However, any rollover of amounts described in the Notice will trigger the one-rollover-per-year limit for any subsequent IRA distributions that occur in the ensuing 12 months.;

* Age 70½ (if you were born before July 1, 1949), age 72 (if you were born after June 30, 1949, and before January 1, 1951), or age 73 (if you were born after December 31, 1950).

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