IRS Provides Transitional Required Minimum Distribution Guidance

On October 7, 2022, the IRS issued Notice 2022-53 (the notice), which provided clarification and transitional relief regarding changes to Code section 401(a)(9) required minimum distributions (RMDs) under the SECURE Act. The notice addressed compliance with respect to 2021 and 2022 post-death RMDs under defined contribution plans and IRAs.

As reported in our March 3, 2022, Compliance Corner article, the SECURE Act made significant changes to the post-death required minimum distribution rules effective beginning in 2020. One notable change is that distributions may only be distributed over the course of a beneficiary’s life expectancy if the beneficiary is an “eligible designated beneficiary.” As a result, distributions to many non-spouse beneficiaries would generally need to be completed by the end of the 10th calendar year following the calendar year of the employee’s death.

Furthermore, if a participant died on or after their required beginning date for distributions, the proposed regulations required that the post-death RMDs to a non-eligible designated beneficiary be paid out for each of the 10 years following the death (i.e., payment of the balance could not be postponed until the end of the 10-year period). However, the proposed regulations were not issued until February 2022, which was after the time when the 2021 RMDs should have been made.

Accordingly, the notice provides needed relief by postponing the effective date of the RMD regulations to the 2023 distribution calendar year. Additionally, under the notice, a plan will not be treated as failing to comply with RMD requirements if it did not make a “specified RMD” for 2021 or 2022. A specified RMD is an RMD to a non-eligible designated beneficiary of a participant who died in 2020 or 2021 on or after their required beginning date and did not take distributions in 2021 or 2022.

A specified RMD also includes an RMD to a beneficiary of an eligible designated beneficiary who died in 2020 or 2021 and was receiving life expectancy payments. In such cases, the beneficiary must continue to take annual distributions with a full distribution made no later than the 10th year after the year of the eligible designated beneficiary’s death.

Importantly, under the notice, the failure to make such 2021 and 2022 specified RMDs will not be treated as a plan qualification failure, nor will the affected beneficiaries be subject to the otherwise applicable 50% excise tax. Additionally, those who already paid an excise tax for a missed RMD in 2021 may request a refund of such tax.

Employers that sponsor defined contribution plans should be aware of the relief and consult with their service providers for further information.

IRS Notice 2022-53 »