RMD Relief and Guidance for 2023
In early 2022, the IRS issued proposed regulations regarding required minimum distributions (RMDs) to reflect changes made by the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. The IRS has held off on releasing final regulations so that it can address additional changes to RMDs made by the SECURE 2.0 Act of 2022, which was passed in late 2022. In the meantime, the IRS has issued interim RMD relief and guidance for 2023. Final RMD regulations, when issued, will not apply before 2024.
Relief with respect to change in RMD age to 73
The RMD age is when IRA owners and employees generally must start taking distributions from their IRAs and workplace retirement plans. An exception applies if an employee is still working for the employer sponsoring the plan. (Roth IRAs do not require RMDs during the owner’s lifetime.)
The SECURE 2.0 Act of 2022 increased the general RMD age from 72 to 73 for individuals reaching age 72 after 2022. Some individuals who reached age 72 in 2023 have already taken distributions even though they are not required to do so until age 73.
Distributions from IRAs and retirement plans can typically be rolled over tax-free to another retirement account within 60 days. (Note: RMDs cannot be rolled over.)
For those who already took distributions in 2023 that were not required, the IRS has extended the 60-day rollover deadline to September 30, 2023.
This relief applies to distributions made between January 1 and July 31, 2023, for:
- Distributions that would have been RMDs if not for the new RMD age of 73
- IRA owners or employees born in 1951
- Surviving spouses of such individuals
Tip: Generally, only one rollover is permitted from a particular IRA within a 12-month period. The special rollover allowed under this relief is permitted even if the IRA owner or surviving spouse has rolled over distribution in the last 12 months. However, making such a rollover will preclude the IRA owner or surviving spouse from rolling over distribution in the next 12 months. (Note that an individual could still make direct trustee-to-trustee transfers since they do not count as rollovers under the one-rollover-per-year rule.)
Inherited IRAs and retirement plans
Before 2020, RMDs for inherited IRAs and retirement plans could generally be spread over the life expectancy of a designated beneficiary. The SECURE Act changed the rules: for most accounts, the entire balance must be distributed within 10 years after the death of the IRA owner or employee (for deaths after 2019).
Exceptions
An eligible designated beneficiary may take distributions over their life expectancy, and the 10-year rule does not apply until after their death. Eligible beneficiaries include:
- A spouse or minor child of the IRA owner or employee
- A disabled or chronically ill individual
- An individual no more than 10 years younger than the IRA owner or employee
For minor children, the account must be distributed 10 years after they reach the age of majority (age 31).
Proposed Regulations and IRS Relief
Proposed regulations issued in early 2022 suggested that annual distributions are required during the first nine years of the 10-year period in most cases. Many were surprised, as missed RMDs could trigger a 25% penalty (50% prior to 2023).
The IRS has announced relief for certain circumstances in which annual distributions were missed in 2023, similar to relief provided in 2021 and 2022.
Relief may be available if:
An eligible designated beneficiary died in 2020, 2021, or 2022, and annual distributions were not taken for 2021–2023.
The IRA owner or employee died in 2020, 2021, or 2022, on or after their required beginning date, and a non-eligible designated beneficiary did not take the required annual distributions for 2021–2023.
IMPORTANT DISCLOSURES
Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
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