U.S. IRS Issues Rollover Relief and Additional Transition Guidance Regarding Required Minimum Distributions

In the absence of final guidance on the recent changes made to the required minimum distributions (RMDs) rules under Section 401(a)(9) of the Internal Revenue Code (Code), the U.S. Internal Revenue Service (IRS) issued Notice 2023-54 (Notice), which provides transition relief relating to these RMD rules. This Notice

(1) confirms that final regulations regarding RMDs will not effective before 2024

(2) gives participants born in 1951 who received unwanted distributions that were improperly characterized as RMDs extra time to roll over these distributions into other tax-qualified plans or individual retirement accounts (IRAs) as they now qualify as “eligible rollover distributions”

(3) extends the relief provided in Notice 2022-53 regarding 2021 and 2022 specified RMDs and related excise taxes to apply to 2023 RMDs

Background

Code Section 401(a)(9) sets forth a required beginning date for RMDs, historically April 1 following attainment of age 70-1/2, and identifies the period over which the participant’s entire retirement account must be distributed. The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) changed the RMD age to 72 for participants born on or after July 1, 1949, and the SECURE 2.0 Act changed the RMD age to 73 for participants born in 1951 or later. Prior RMD guidance provided that the final RMD rules would not be effective prior to 2023.

What You Need to Know

1. Final Regulations No Sooner than 2024. The Notice confirms that the final regulations regarding RMDs will not be effective earlier than 2024. The extension will provide the IRS time to update its guidance to reflect changes made in the SECURE 2.0 Act, which was passed after the IRS originally issued the proposed RMD regulations.
2. 2023 RMD Payments for Participants Who Turn 72 in 2023. As indicated above, the SECURE 2.0 Act amended the definition of “required beginning date” applicable to tax-qualified plans. As a result of this change, certain individuals who have reached or will reach age 72 in 2023 may have unnecessarily taken distributions that were mischaracterized as RMDs between January 1 and July 31, 2023. The Notice provides relief by extending the 60-day deadline for rollovers of such amounts and allowing plan participants until September 30, 2023, to complete a rollover of such distribution amounts.
3. Relief From the “At Least as Rapidly” Rule for 2023 RMD Payments for Certain Beneficiaries. Similar to the relief provided in Notice 2022-53, the Notice provides that a defined contribution plan that failed to make a “specified RMD” (a certain type of RMD that would otherwise have been required in 2023, as described in the Notice) will not be treated as having failed to satisfy Code Section 401(a)(9) because it did not make that distribution. In addition, taxpayers who did not take a specified RMD in 2023 will not be subject to the 50% excise tax for a missed RMD that would otherwise have been due.

Knowledge management lawyer Katie Dean contributed to this Sidley Update.