On July 18, 2024, the IRS released final regulations updating the required minimum distribution (RMD) rules for retirement plans. The final regulations, which reflect certain changes made by the SECURE Act and the SECURE 2.0 Act, largely follow proposed regulations issued in 2022 (the 2022 proposed regulations). Simultaneously, the IRS issued new proposed regulations (the 2024 proposed regulations), addressing additional RMD issues under the SECURE 2.0 Act (SECURE 2.0).
The SECURE Act and SECURE 2.0 made significant changes to the RMD rules applicable to retirement plan participants during their lifetimes and to beneficiaries after their deaths. For participants, a key change was the applicable required beginning date (RBD) for commencing plan distributions. Prior to the SECURE Act, the RBD was defined as the later of April 1 of the calendar year following the year in which the participant attained age 70½ or the year the participant retired from employment with the employer maintaining the plan. The RBD age was increased by the SECURE Act from 70½ to 72, and then to 73 or 75 by SECURE 2.0. Accordingly, as implemented under the final regulations, the applicable RBD age for a participant is:
Although not addressed by the final regulations, the 2024 proposed regulations clarify that the applicable age for a participant born in 1959 would be 73.
Notwithstanding the foregoing, the preamble to the final regulations notes that a plan is permitted to use age 70½ as the required commencement date for all participants, regardless of their birthdates. This option may be of particular interest to sponsors of defined benefits plans, which are generally required to actuarially increase the benefits of participants who commence benefits after attainment of age 70½. Additionally, in-plan Roth accounts are exempt from the lifetime RMD requirements, effective in 2024.
As expected, under the final regulations, distributions to a beneficiary after the participant’s death can no longer be spread over the lifetime of the beneficiary but must be paid out within 10 years unless the beneficiary is an “eligible designated beneficiary” (i.e., a spouse, minor child, disabled or chronically ill, or not more than 10 years younger than the participant). Furthermore, the final regulations confirm that if the participant’s death occurs after their distributions have begun, the benefits to the beneficiary must continue “at least as rapidly” as required by Code section 401(a)(9) and comply with the 10-year rule. As with the 2022 proposed regulations, the final regulations interpret the Code language to require the beneficiary to continue annual distributions after the participant’s death rather than allowing the beneficiary to delay receipt of the remaining benefit, provided the full amount is distributed within 10 years of the death.
Additionally, the final regulations reflect a SECURE 2.0 Act rule that allows a surviving spouse who is the sole eligible designated beneficiary to elect to have the post-death RMDs calculated using the actuarial table applicable to a participant’s lifetime distributions, which would generally allow for smaller annual distributions than under the single life table normally applicable to beneficiaries. The final regulations and 2024 proposed regulations discuss the application of this rule and default rules applicable where the plan terms are silent.
Overall, the final regulations are very comprehensive and address many other aspects of RMDs, including distributions to minor children upon attainment of age 21 and to beneficiaries under certain types of trusts.
Sponsors of retirement plans should be aware of the issuance of the final regulations and work with their service providers to bring their plans into compliance by January 1, 2025. For prior years, a good faith reasonable interpretation of the SECURE Act and SECURE 2.0 Act amendments applies. Importantly, plan sponsors will need to update their plan documents to address the new RMD rules. However, plan amendments are generally not required until December 31, 2026.
The 2024 proposed regulations provide further details about many SECURE 2.0 Act RMD changes, including certain corrective distributions, and are proposed to apply beginning January 1, 2025. Plan sponsors wishing to submit comments on the 2024 proposed regulations can do so by September 17, 2024, in accordance with the instructions. Additionally, a public hearing is scheduled for September 25, 2024.
RMD Final Regulations RMD Proposed Regulations
PPI Benefit Solutions does not provide legal or tax advice. Compliance, regulatory and related content is for general informational purposes and is not guaranteed to be accurate or complete. You should consult an attorney or tax professional regarding the application or potential implications of laws, regulations or policies to your specific circumstances.
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