IRS Issues RMD Relief Related to SECURE Rules

The Internal Revenue Service and the Department of the Treasury have issued a notice that provides leniency regarding mistaken required minimum distribution payouts from retirement plans under new SECURE 2.0 Act of 2022 rules and gives additional RMD relief for beneficiaries of individual retirement accounts.

The IRS’s Notice 2023-54, issued on Friday, extends a 60-day rollover deadline for retirement plan accounts, including IRAs, that were mistakenly paid out as RMDs, even though they did not need to be. SECURE 2.0, passed in December 2022, amended Section 401(a)(9) of the Internal Revenue Code to increase the RMD age by one year to 73.

In the notice, the IRS wrote that plan administrators and other payors commented that, following SECURE 2.0, “automated payment systems would need to be updated to reflect the change in the required beginning date” and that they “expressed concern that these revisions could take some time to implement.” As a result, there could have been RMDs taken out for those who were still young enough to keep them within the retirement savings investment.

The latest notice grants relief to any distribution made between January 1 and July 31 to a participant born in 1951, allowing that distribution to roll back into the savings plan.

“For example, if a participant who was born in 1951 received a single-sum distribution in January 2023, part of which was treated as ineligible for rollover because it was mischaracterized as an RMD, that participant will have until September 30, 2023, to roll over that mischaracterized part of the distribution,” the IRS wrote.

The regulators also announced relief for IRA beneficiaries from a 10-year rule created from the original Setting Every Community Up for Retirement Enhancement Act of 2019. That legislation mandated that, for defined contribution plan participants and IRA owners, their entire plan balance must be paid out within 10 years after their death.

That notice was causing confusion among IRA retirement plan beneficiaries, according to the IRS, so it extended relief to designated beneficiaries into 2023, allowing them to skip RMDs. The IRS had already waived enforcement in 2022 for those beneficiaries who had not taken RMDs in 2021 and 2022.

The notice states that the final regulations the Treasury Department and IRS intend to issue related to RMDs will apply to RMDs for calendar years beginning no earlier than 2024.