SECURE 2.0 included a plethora of qualified retirement plan provisions, including a delay in the Required Beginning Date for participants to commence benefits under defined benefit and defined contribution plans. Bolton’s March 17, 2023 News addressed some of the technical drafting errors in the SECURE 2.0 legislation. Congressional leadership has expressed their intent to the Treasury Department to pass technical corrections legislation to clarify the intent of the statutory changes.
In the meantime, the IRS issued Notice 2023-54 to provide transition relief for plan administrators working diligently with their recordkeepers and other advisors to implement the Required Minimum Distribution (RMD) changes that take effect in 2023. For example, participants who attain age 72 in 2023 would be required to take RMDs starting in 2023 prior to the SECURE 2.0 changes which delay the required start of those distributions to 2024.
The IRS confirmed that any final regulations related to the SECURE 2.0 RMD changes will not take effect before 2024. They also provided guidance related to RMD-related distributions during 2023 that would otherwise cause qualification and tax issues for plans and taxpayers.
In response to concerns raised by plan administrators and vendors, the IRS is providing relief related to distributions made during 2023 that were initially classified as RMD which are no longer RMDs under SECURE 2.0. Specifically:
- Distributions made from a qualified retirement plan between January 1, 2023 and July 31, 2023 to a participant born in 1951 will not cause a qualification failure for a plan administrator or payor who did not treat the distribution as an eligible rollover distribution when paid.
- The 60-day rollover deadline is extended to September 30, 2023 for participants who received such distributions. The portion that was mischaracterized as RMD rather than eligible rollover distribution may be rolled over to an Individual Retirement Account (IRA) or another plan by September 30, using the 60-day rollover rules (i.e., they will need to contribute the amount received plus any taxes withheld to the IRA).
- Similarly, distributions made from IRAs during the period January 1, 2023 to July 31, 2023 that were mischaracterized as RMDs are permitted to be rolled over prior to September 30, 2023 to continue deferral of taxation. Doing so precludes the IRA owner or surviving spouse from rolling over another distribution in the next twelve months.
The IRS also addressed failures to make certain RMD payments from defined contribution plans during 2023, such as those made to a designated beneficiary of an employee who died during 2020, 2021 or 2022 and on or after the employee’s Required Beginning Date, where the beneficiary is not using the lifetime or life expectancy payment method of determining the required annual payment. In this case, the plan will not be treated as failing to make the RMD and the employee or beneficiary will not incur the excise tax on missed distributions for 2023.[1] The guidance related to defined contribution plans also applies to IRAs.
Questions? Contact your Bolton consultant today.
[1] SECURE 2.0 reduced the excise tax on missed RMDs from 50% to 25% beginning in 2023, with a further reduction to 10% if the missed RMD is corrected by the end of the second year beginning after the year of the missed RMD.
