The IRS and Treasury Department have issued final regulations regarding RMDs related to the SECURE Act.
Today, July 19, 2024, the IRS and Treasury Department announced the long-awaited Final Rule About required minimum distributions. RMDs are mandatory annual withdrawals from an IRA, 401(k) or other tax-deferred retirement plan.
The final rules clarify changes brought about by the SECURE Act, which went into effect in 2020, and the SECURE 2.0 Act, which was signed into law at the end of 2022. The new rules will take effect on January 1, 2025.
Comment Summary
For a quick overview, we recommend you look at page 14, “Summary of Comments and Explanation of Revisions.”
10-year rule
One of the issues clarified in the final rules was whether individual beneficiaries who are already taking RMDs (with some exceptions) would be required to continue taking RMDs annually, which has generated a lot of backlash. Proposed RMD Regulations The original SECURE Act was released in February 2022.
As has been pointed out IRS Notice 2022-53many beneficiaries have been told by the IRS that under the SECURE Act, no RMDs will be due for nine years and they will only be required to empty the account over a 10-year period, regardless of whether the original IRA owner was taking RMDs.Number Year.
but, IRS Press Release“The Treasury Department and the IRS have determined that the final regulations should retain the provisions of the proposed regulations requiring such beneficiaries to continue to receive annual payments.”
The exception is the “qualified designated beneficiary.” IRS Publication 590-B The surviving spouse of the IRA owner, the IRA owner’s minor children, a disabled or chronically ill person, or any other individual who is within 10 years of the IRA owner. Eligible designated beneficiaries have other options for disposing of an inherited IRA and are not limited to the 10-year rule.
What about Roth 401(k)s?
Until Secure 2.0 amended Section 402A of the Internal Revenue Code to add a new subsection (d)(5), RMDs from a Roth 401(k) were required even if the withdrawals were not subject to income tax. After 2024, RMDs from a Roth 401(k) will no longer be required.
Were you born in 1959?
However, an issue that arose with the SECURE 2.0 Act concerned the age at which RMDs could be taken, specifically for people born in 1959. 7 The final rule notes that “Section 107 of the SECURE 2.0 Act contains ambiguity regarding the definition of the applicable age for employees born in 1959 (Section 401(a)(9)(C)(v) provides that the applicable age for such employees is both 73 and 75 years of age).”
Separately, a Notice of Proposed Rulemaking (Registration number 103529-23The Labor Standards Act announced today stipulates that “for employees born in 1959, the applicable age will be 73 years old.” A public hearing on the proposed rulemaking is scheduled for September 25, 2024.
Things to note
Always consult with your tax advisor regarding RMDs before taking any action.
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