Compliance News | April 26, 2024

IRS Provides Relief for Certain 2024 RMDs

The IRS has provided relief for 2024 required minimum distributions (RMDs) from DC plans to beneficiaries of participants who died in 2020, 2021, 2022 or 2023 after their required beginning dates (RBDs). The IRS issued similar relief for 2022 and 2023 RMD distributions.

The extended relief addresses a controversial proposed IRS interpretation of a RMD provision changed by the Setting Every Community Up for Retirement Enhancement Act (SECURE Act).

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The latest relief

The latest relief, which is in Notice 2024-35, provides that:

  • Failures to make certain “specified RMDs” to beneficiaries of participants who died in years 2020–2023 after the participant’s RBD will not be treated as a failure to make an RMD and will not be subject to the excise tax that would have applied had there been a failure.
  • The final rule for this change and other SECURE Act RMD changes will not be effective earlier than January 1, 2025.

Background on the 10-year rule

The IRS rules for RMDs generally require that participants start receiving benefits by a specified age and beneficiaries start receiving their benefits by a specified time after the participant’s death.

The SECURE Act provided that certain non-spouse beneficiaries of participants who died in 2020 or later are required to take their distributions over a maximum period of 10 years. In February 2022, the IRS issued a proposed rule that stated that in the case of a participant who died after the participant’s RBD, annual RMDs would also be required in each of years 1–9 (unless the account was fully distributed in an earlier year). The beneficiary could not wait until year 10 to receive the entire distribution. This appeared to contradict a somewhat similar (but not identical) rule that applied when the distribution requirement was five years.

Because the IRS has not yet issued a final rule and there were numerous comments objecting to the “each year” interpretation, the IRS in late 2022 and again in (Notice 2022-53) and again in 2023 (Notice 2023-54) provided relief under the 10-year rule from the excise tax for failure to take the RMD. Notice 2024-35 extends the relief for another year.

The RMD rule addressed by this Notice was discussed in more detail in our July 20, 2023 insight on Notice 2023-54, “IRS Provides Transition Guidance for 2023 RMDs.”

Next actions

How the 10-year rule applies will be resolved in the final rule. IRS staff have indicated that they hope to issue the final rule in the next several months but cannot predict how long the IRS’s internal clearance process will take. The final rule will also cover those SECURE 2.0 changes that do not require another proposed regulation.

When it issues the final regulation, the IRS will also issue a proposed regulation covering the remaining SECURE 2.0 RMD issues.

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This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.