The IRS and Treasury released proposed regulations (REG-105954-20) that would update existing rules for required minimum distributions (RMDs) from qualified retirement plans.
Enacted in December 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act
revised the starting date for required minimum distributions (RMDs) from a qualified plan, generally to April 1 of the calendar year following the later of the calendar year in which the employee either turns age 72 or retires (Sec. 401(a)(9)(C)). Before the SECURE Act's amendment, that age was 70½. The higher age was effective for distributions required to be made after Dec. 31, 2019 (with respect to individuals who turned age 70½ after that date) (SECURE Act Section 114(a)).
Also, the SECURE Act eliminated "stretch" individual retirement accounts (IRAs) or plan distributions by requiring distributions to nonspouse beneficiaries (other than eligible designated beneficiaries) to be completed within 10 years following a plan participant or IRA owner's death (the 10-year rule) rather than, as before, over the beneficiary's life or life expectancy. The SECURE Act defined eligible designated beneficiaries for purposes of the exception to the 10-year rule as the employee's surviving spouse, the employee's child under the age of majority, a disabled designated beneficiary, a chronically ill individual, or other individual no more than 10 years younger than the employee (Sec. 401(a)(9)(E)(i)).
The proposed regulations provide general rules for RMDs, including application of the 10-year rule where the retirement plan owner dies, then the designated beneficiary also dies. If the owner died before Sec. 401(a)(9)(H)'s effective date for the plan and the owner had only one designated beneficiary who also died before that effective date, the beneficiary of the designated beneficiary is subject to the 10-year rule. If the owner's designated beneficiary died on or after that effective date, the 10-year rule does not apply to the beneficiary of the designated beneficiary. If the owner dying before the Sec. 401(a)(9)(H) effective date for the plan had more than one designated beneficiary, whether the SECURE Act amendments apply depends on when the oldest beneficiary dies.
The proposed regulations also address the SECURE Act RMD starting age of beneficiaries of an owner who died before reaching age 70½ but would have reached that age on or after Jan. 1, 2020. In that case, the beneficiary may wait until the calendar year in which the employee would have reached age 72 to begin RMDs.
The proposed regulations clarify the eligible designation beneficiary definition, age of majority, applicability of disability to young beneficiaries, and more. The proposed regulations would generally apply for purposes of determining RMDs for calendar years beginning on or after Jan. 1, 2022, or to distributions on or after that date. For the 2021 distribution calendar year, taxpayers must apply the existing regulations but take into account a reasonable, good-faith interpretation of the SECURE Act amendments, which compliance with the proposed regulations will satisfy.