IRS Issues Final and Proposed Regulations on Required Minimum Distributions, T.D. 10001; Proposed Regulations, NPRM REG-103539-23; IR-2024-190

The IRS issued final and proposed rules governing required minimum distributions (RMDs) under Code Sec. 401(a)(9). The regulations reflect changes made by the SECURE Act (P.L. 116-94) and SECURE 2.0 Act (P.L. 117-328) that apply to qualified plans and IRAs. The final regulations apply for distribution calendar years beginning on or after January 1, 2025. The IRS simultaneously proposed further changes to reflect certain provisions of the SECURE 2.0 Act.

Final Regulations

The final regulations reflect the SECURE Act’s increase in the applicable age for beginning RMDs and the limitation on lifetime distributions to beneficiaries under defined contribution plans. With respect to lifetime distributions under Code Sec. 401(a)(9)(H), the final regulations provide that the 10-year rule applies to designated beneficiaries that die on or after the January 1, 2020, statutory effective date. The regulations provide additional details on the definition of eligible designated beneficiaries.

The IRS retained the controversial rule in the proposed regulations that requires continued annual distributions to a designated beneficiary under the 10-year rule. Thus, when an employee or IRA owner dies on or after their required beginning date and their beneficiary follows the 10-year distribution rule, the beneficiary must continue to take annual distributions until the end of the 10-year period, when full distribution is required. This rule also applies after the death of an eligible designated beneficiary taking life expectancy payments and a minor child beneficiary’s attainment of the age of majority. However, the IRS noted that transition relief applies through 2024.

The final regulations also provide rules for treating trusts as beneficiary, in particular, rules for see-through trusts and trusts with multiple beneficiaries. The final regulations include a special rule that prevents a surviving spouse from using the 10-year rule to delay the commencement of benefits beyond the decedent’s required beginning date.

Proposed Regulations

The IRS reserved some provisions of the final regulations that reflect changes made under the SECURE 2.0 Act. For example, the statute is unclear as to whether the applicable age for employees born in 1959 is 73 or 75. The proposed regulations would provide that 73 is the applicable age for beginning RMDs.

In addition, the IRS is seeking comments on the following:

• Rules of operation for aggregating the purchase of an annuity contract with a portion of the employee’s individual account.
• Whether distributions from a designated Roth account should be disregarded for purposes of satisfying RMD rules, so that it might be rolled over to a Roth IRA.
• Whether a RMD must be made in a year in which a corrective distribution for a previous year is made.
• How to make a spousal election to be treated as the employee for purposes of calculating the RMD.
• How divorce affects the purchase of qualifying longevity annuity contract (QLAC).

Effective Dates

The final regulations apply for distribution calendar years beginning on or after January 1, 2025. For earlier distribution calendar years, taxpayers must apply prior regulations plus a reasonable good faith interpretations of statutory amendments made by the SECURE Act and (for 2023 and 2024 distribution calendar years) the SECURE 2.0 Act.

The proposed regulations would have the same applicability dates as the corresponding provisions in the final regulations.