Treasury and IRS released final regulations (TD 10001) implementing changes to the required minimum distribution (RMD) rules for individual retirement account (IRA) owners, retirement plan participants, and their beneficiaries made by the SECURE Act and the SECURE 2.0 Act. These final regulations generally retain the rules as proposed and are applicable for determining RMDs for calendar years beginning on or after January 1, 2025.
In particular, the final regulations clarify that when the owner of a traditional IRA dies on or after their required beginning date for RMDs, most non-spouse beneficiaries must take RMDs every year and fully distribute the account by the end of the calendar year including the tenth anniversary of the date of the owner’s death. Prior to the publication of these final regulations, and in response to agency and taxpayer uncertainty regarding the application of this rule, IRS issued a series of notices waiving the excise tax for certain beneficiaries (generally, those beneficiaries that would have had to take RMDs if the final regulations applied) that failed to take RMDs during 2021-2024. The rule in the case of an IRA owner who dies before the RMD period begins remains unchanged, and most non-spouse beneficiaries can wait until the tenth year to distribute the account fully. Beginning in 2023, the excise tax for missed RMDs was reduced from 50% to 25% and may be reduced to 10% if the RMD is timely corrected within two years.
IRS also issued proposed regulations (REG-103529-23) addressing rules not covered in the final regulations, including among other things designated Roth account distributions and waivers of the excise tax under Sec. 4974.
Additional history and background of the changes under the SECURE Act and SECURE 2.0 Act to the RMD rules can be found in Andersen’s for the Record Q3 2022 Newsletter article available here.
For questions regarding RMDs or the application of the final regulations, please contact Amber Salotto or Dennis Minich.