As discussed in this insight, the guidance notes:

• A final rule for the SECURE 2.0 RMD changes will not be effective earlier than 2024.
• Participants born in 1951 have an extended period to roll over distributions mistakenly taken as RMDs in 2023.
• Special rules apply to 2023 RMDs for beneficiaries of participants who died while receiving RMDs.

Background

The IRS rules for RMDs generally require that participants start receiving benefits by a specific age. Historically, that age has been 70½, with the required beginning date (RBD) occurring in the calendar year following the calendar year the participant attained age 70½. (For a non-5 percent owner, a plan could, but need not, allow the participant to delay the commencing RBDs until the participant separated from service.)

The SECURE Act changed the RMD age to 72 for participants born on or after July 1, 1949. SECURE 2.0 further changed the age to 73 for participants born in 1951 (age 72 in 2023). Starting in 2033, the relevant age is scheduled to be age 75.

When a beneficiary’s RMD is required to commence is determined by several factors, including whether the plan is a DB or DC plan, whether the participant commenced lifetime benefits before death and whether the beneficiary is the participant’s spouse.

SECURE changed the rules for DC plans to limit beneficiaries who could take lifetime benefits to “eligible” designated beneficiaries, which include spouses and non-spouses not more than 10 years younger than the participant. Before the SECURE Act, any beneficiary who did not take a lifetime benefit had to receive their full RMD no longer than five years following the participant’s death.

The SECURE Act changed five years to 10 years for DC plan designated beneficiaries. It also, as interpreted by the IRS, required a beneficiary of a participant who had commenced RMDs prior to death to continue to receive an RMD each year following the participant’s death (rather than waiting until the 10^th year to receive the full distribution).

The IRS issued a proposed rule on the SECURE Act changes on February 24, 2022. In late 2022, based on comments on the proposed rule and the likely passage of SECURE 2.0, which contained further changes to the RMD rules, IRS issued Notice 2022.53.

The transition guidance provides 2023 relief

The transition guidance, Notice 2023-54, which was issued on July 14, 2023, extends and expands the earlier guidance.

Effective date of final rule

The prior guidance provided that the final rule, when issued, would not be effective prior to 2023. The new guidance provides that the final rule, when issued, will not be effective prior to 2024.

Participants born in 1951 (age 72 in 2023)

Some plan sponsors distributed amounts in 2023 under the mistaken belief that the RMD had occurred for participants born in 1951. Notice 2023-54 provides relief to plan sponsors who failed to follow requirements for non-RMD lump sums, such as 20 percent withholding and providing a tax rollover notice with the payment. The relief applies to any distribution made from a plan between January 1, 2023 and July 31, 2023 to a participant born in 1951 (or that participant’s spouse) that would have been an RMD except for the change made by SECURE 2.0.

Extension of 60-day rollover

Participants and surviving spouses in the January 1, 2023 to July 31, 2023 group might not have rolled over their distributions within the 60-day rollover period because they thought they were RMDs, which may not be rolled over. Notice 2023-54 extends the 60-day rollover period for those distributions until September 30, 2023.

DC plans that did not continue to make distributions to beneficiaries

Many participants interpreted the new 10-year distribution rule in the same manner as the five-year rule: no distributions were required until the end of the period. However, the proposed rule takes the position that if the participant has started RMDs, the beneficiary must start receiving their RMDs in the year following the participant’s death and finish receiving them within 10 years of the participant’s death. Earlier guidance provided relief for the beneficiary’s 2021 and 2022 RMDs. Notice 2023-54 extends that relief for 2023 RMDs.

Consequently, it provides relief to:

• A designated beneficiary of a participant, if the participant died in 2020, 2021 or 2022, on or after the participant’s RBD, and the beneficiary is not using the lifetime exception
• A beneficiary of an eligible designated beneficiary who died in 2020, 2021 or 2022, and the eligible designated beneficiary (i.e., the one who died) was using the lifetime exception

Next actions

Notice 2023-54 does not address when the final rule will be issued, other than noting that it will not be effective before 2024. It also does not address whether the IRS will move directly to a final rule on some or all of the proposal or whether a final rule will be further delayed by proposed rules on SECURE 2.0 changes.