Key Takeaways

IRS Notice 2023-54 (Notice) issued Friday provides transition relief for certain SECURE Act and SECURE 2.0 Act changes to the required minimum distribution (RMD) rules. In a nutshell:

• The forthcoming final RMD regulations won’t apply to calendar years before 2024.
• A plan won’t violate the rollover rules by failing to treat distributions between January 1 and July 31, 2023 to participants who reach age 72 in 2023 as eligible rollover distributions.
• The 60-day indirect rollover period for such distributions is extended until September 30, 2023.
• A defined contribution plan won’t violate Code section 401(a)(9) by failing to make a “specified RMD” to a beneficiary in 2023.
• The Code section 4974 excise tax won’t apply to a beneficiary because the beneficiary failed to take a “specified RMD” in 2023.

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Background

The SECURE 2.0 Act increased the required beginning date (RBD) age for RMDs from age 72 to: age 73 for participants who reach age 72 after 2022, and age 73 before 2033; and age 75 for participants who reach age 74 after 2032. Thus, the first participants affected will reach age 73 in 2024, thereby delaying the first RMD from April 1, 2024 until April 1, 2025. The challenge for many plan administrators and TPAs has been to implement the change for 2023 distributions to participants who would have otherwise been required to receive them by April 1, 2024. As a result some of those distributions may have been mischaracterized as ineligible for rollover under the old rules.

Previously, the SECURE Act made significant changes to the post-death required minimum distribution rules for defined contribution plans, generally effective in 2020. Among those changes, a plan must generally distribute benefits to a designated beneficiary, other than an “eligible designated beneficiary,” by the tenth anniversary of the participant’s death (the 10-year rule). Many practitioners interpreted this to mean that, as under the existing 5-year rule, no distributions would be required until the end of the period.

Under proposed regulations published in February last year, however, the IRS interpreted the 10-year rule to mean that distributions to a participant who dies on or after the required beginning date would have to comply with both the 10-year rule and the existing at least-as-rapidly rule. In response to comments, the IRS issued Notice 2022-53 in October of last year to delay the effective date of the final regulations to no earlier than 2023. Moreover, Notice 2022-53 provided that a defined contribution plan wouldn’t violate Code section 401(a)(9) merely because it failed to make a “specified RMD” in 2021 or 2022, and the Code section 4974 excise tax wouldn’t apply to beneficiaries who failed to take a “specified RMD” in those years.

Notice Relief

The new Notice provides additional transition relief with respect to changes made by the SECURE Act and SECURE 2.0 Act to the RMD rules.

First, the Notice further delays the anticipated final regulations’ effective date until at least 2024.

Second, in response to plan administrators’ and TPAs’ concerns about the short time frame for implementing SECURE 2.0 Act’s change to the RBD, the Notice provides that a plan won’t violate the rollover rules by failing to treat 2023 distributions to participants who reach age 72 in 2023 as eligible rollover distributions. The relief applies to any distribution between January 1 and July 31, 2023, to a participant born in 1951 that would have been an RMD but for the SECURE 2.0 Act change.

Third, the Notice extends the 60-day deadline for indirect rollovers of 2023 distributions between January 1 and July 31, 2023 to participants who reach age 72 in 2023 that would have been an RMD but for the SECURE 2.0 Act change to the RBD until September 30, 2023.

Fourth, the Notice extends the relief applicable to “specified RMDs” for 2021 and 2022 under Notice 2022-53 to “specified RMDs” for 2023. Thus, a defined contribution plan will not fail to satisfy Code section 401(a)(9) merely because it failed to make a “specified RMD” in 2023. The Notice defines a “specified RMD” as a distribution that would have been required under the proposed regulations to (1) a participant’s designated beneficiary if the participant died in 2020, 2021, or 2022 on or after their required beginning date, and the designated beneficiary isn’t using the life expectancy rule, or (2) an eligible designated beneficiary’s beneficiary if the eligible designated beneficiary died in 2020, 2021, or 2022 and the eligible designated beneficiary was using the life expectancy rule.

Fifth, the Notice provides relief from the Code section 4974 excise tax for a beneficiary who fails to take a specified RMD for 2023.