On July 17, the Internal Revenue Service (IRS) issued an advance version of Notice 2023-54 (the Notice) which will include transition relief for plan administrators in connection with the change in the required beginning date for required minimum distributions (RMDs) under §401(a)(9) of the Internal Revenue Code (Code) under §107 of the Setting Every Community Up for Retirement Enhancement Act of 2022 (SECURE 2.0). Plan administrators welcome this guidance as if it had big brown eyes, floppy ears, and a happily wagging tail.
Waiting For Your Puppy to Grow (Effective Date of Final Regs. Extended)
The IRS previously issued Notice 2022-53, stating that final RMD regulations would not take effect until the 2023 distribution calendar year. The Notice extends that relief and provides, “Final regulations regarding RMDs under § 401(a)(9) and related provisions will apply for calendar years beginning no earlier than 2024.”
It’s OK to Have Accidents (Mischaracterized RMDs Can Be Rolled Over Until September 30, 2023)
Congress modified the RMD rules with the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) in 2019 and again with SECURE 2.0 in 2022. These two modifications changed the date an individual would need to take an RMD. However, due to the timing of the change in the law, some individuals born in 1951 unnecessarily took an RMD in early 2023, and the Notice provides relief to these individuals. Specifically, the Notice states that if a participant born in 1951 received a distribution in 2023 that was treated as ineligible for rollover because it was believed to be a required RMD, that participant has until September 30, 2023, to roll over that distribution.
Consistent Messaging is the Key to Successful Training (IRS – Take Note)
The IRS’s proposed regulations were misunderstood by some who thought that the 10-year rule would apply as the long-standing 5-year rule always had, so there would be no RMD due until the last year of the 5- or 10-year period following the specified event (the death of the employee, the death of the eligible designated beneficiary, or the attainment of the age of majority for the employee’s child who is an eligible designated beneficiary.) To be clear, the 10-year rule does not allow for a 10-year delay in all cases; if the beneficiary is not an eligible designated beneficiary, annual RMDs are required throughout the 10-year period if the plan participant died on or after his required beginning date.
Compliance with the new rules will require careful analysis, plan amendment, and updated administration like a new puppy requires housebreaking, crate training, and constant supervision. Ultimately, both will provide the warm fuzzy feeling of a job well done.
If you have any questions, the Jackson Lewis Employee Benefits Practice Group members are available to assist. Please contact a Jackson Lewis employee benefits team member or the Jackson Lewis attorney with whom you regularly work if you have questions or need assistance.