IRS Updates Retirement Plan and IRA FAQs

December 17, 2024

On December 10, 2024, the IRS updated its FAQs for retirement plan and IRA required minimum distributions (RMDs). The FAQs are updated periodically to incorporate new guidance and provide clarity as needed. As we discussed in our July issue of Compliance Corner IRS Issues Updated Guidance on Required Minimum Distributions, the IRS released final regulations updating the RMD rules under the SECURE Act and SECURE 2.0 Act (SECURE 2.0). These FAQs, in part, provide additional clarification for plans and plan participants.

The recent updates address six of the existing FAQs:

• Definition of RMDs: The SECURE Act and SECURE 2.0 made significant changes to the applicable required beginning date (RBD) for commencing plan distributions and how to handle RMDs after a participant’s death. The FAQ defines RMDs and discusses the timing of distributions for participants and their beneficiaries.
• Types of plans subject to RMD rules: The rules apply to all employer-sponsored retirement plans and also to traditional IRAs and IRA-based plans such as SEPs, SARSEPs, and SIMPLE IRAs. RMD rules also apply to Roth IRA and Designated Roth accounts, but only after the death of the account owner.
• Timing of RMD from IRA: The updated guidance explains that the first RMD from an IRA applies for the year in which an individual turns 73, although they can delay taking the first RMD until April 1 of the following year.
• Failure to take RMD: Failure to withdraw the RMD may result in an excise tax of up to 25%, though it may be reduced to 10% if timely corrected within two years.
• Employer requirements for RMDs: Employers must continue to make contributions for employees even if they are receiving RMDs and must allow the employee to continue to participate if the plan rules permit.
• RMD rules for pre-1987 contributions to a 403(b) plan: Pre-1987 amounts may be exempt from RMD rules in certain situations.

Sponsors of retirement plans should be aware of the updated FAQs and update plan documents accordingly.

Retirement Plan and IRA Required Minimum Distribution FAQs