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Carolyn A.W. Whitworth (AEP®)


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Final RMD Regulations Under SECURE Act Expected

The IRS issued proposed regulations in February 2022 that expanded on the changes made by the SECURE Act to require minimum distributions (RMDs) from most retirement accounts.  The proposed regulations contained some highly controversial interpretations of the requirements.  The IRS issued Notice 2022-53 on Friday (10/7/2022) indicating that it intends to issue final regulations and providing for certain transition rules that apply with respect to decedents dying in 2020 and 2021. 

The SECURE Act made changes to the distribution requirements for beneficiaries of most retirement accounts, eliminating the general rule for life expectance pay-outs for most beneficiaries.  Generally, if there was a designated beneficiary on an account, the account has to be distributed under a new 10-year rule, which the Act describes as the 5-year rule lengthen to 10 years.  The 10-year rule applies whether the date of death was before or after the required beginning date (RBD).  Exceptions apply for a new category of “eligible designated beneficiaries” (EDBs) who are still permitted to use their life expectancies to calculate their RMDs under some circumstances. 

The controversary surrounds the IRS interpretation, first revealed in the proposed regulations, of how the 10-year rule applies.  The 5-year rule had allowed taking distributions only in the fifth and final year, unless the beneficiary chose to take earlier distributions during the five year period.  In the proposed regulations the IRS reversed this position for the 10-year rule if the decedent died after the RBD, requiring that distributions be taken each year of the ten year period and the balance in the tenth year.   It appears from this Notice that the proposed interpretation likely will be kept in the final regulations. 

The Notice provides for transition rules for beneficiaries of decedents who died in 2020 and 2021 because those beneficiaries would be subject to a 50% excise tax for not taking the RMDs that are required under the interpretation in the proposed regulations (which were to apply beginning with the 2022 distribution calendar year).  In response to concerns raised by comments made to the proposed regulations, the IRS indicates that the final regulations will apply no earlier than the 2023 distribution calendar year.  The IRS further provides that it will not impose the excise tax if the beneficiary did not take the RMD for 2021 or 2022 and that a beneficiary who paid the excise task for not taking the 2021 RMD can request a refund.

The foregoing describes the SECURE Act and proposed regulations in general terms and does not reflect the nuances and special rules that apply.  For more detailed information about the RMD rules and future developments, please contact an attorney in the Estates & Trusts Group of Tucker Arensberg, P.C.

October 12, 2022

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