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IRS Releases Long-Awaited Secure Act RMD Regs

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What You Need to Know

  • The Secure Act, enacted in 2019, left many open questions about RMDs, Ed Slott says.
  • The IRS plan is filled with in-depth info on how the Secure Act RMD rules will work, Slott says.
  • The plan is out for a 90-day public comment period and public hearing to be held June 15.

The Internal Revenue Service released Wednesday long-awaited proposed regulations that address unanswered questions about how to handle required minimum distributions under the Setting Every Community Up for Retirement Enhancement (Secure) Act of 2019.

The Secure Act “was enacted back at the end of 2019, with most provisions in effect since 2020, but the law left many open questions,” Ed Slott of Ed Slott & Co. told ThinkAdvisor Wednesday in an email.

“Now, finally, over two years later these proposed regulations provide our first glimpse into the answers to most of the open RMD questions” after the Secure Act, Slott said.

The regs “run an enormous 275 pages and are filled with in-depth info on how the Secure Act RMD rules will work for IRA owners, plan participants, beneficiaries and especially IRA trusts,” Slott said. “We are already digging in on this trove of tax rules. Stay tuned!”

Some of the issues clarified by the IRS, according to Slott, include:

  • The age of majority to determine whether a child of the deceased IRA owner qualifies as an eligible designated beneficiary is 21, even though in most states the age of majority is 18.
  • The existing look-through IRA trust rules, after the Secure Act.
  • The 10-year rule means by the end of the 10th year after death, even though the Secure Act seemed to suggest the 10-year rule began on the date of death.
  • The IRS also provides answers on how RMDs would apply when there are multiple beneficiaries, especially when the beneficiary is an IRA trust, and when there are different categories of beneficiaries on the same IRA — for example a beneficiary who qualifies as an EDB (eligible designated beneficiary), and one who doesn’t.

Adam Cohen, partner at Eversheds Sutherland and a member of its Tax Practice Group, added in another email that the proposed regs “include a surprising interpretation of the rules that apply when the participant dies after commencing RMDs. In general, If there is a non-spouse beneficiary who is more than 10 years younger than the participant, the entire account balance is required to be distributed by the 10th year following death, and no distributions are required in years 1-9 following death.”

However, Cohen said, “the proposed regulations somewhat unexpectedly say that when RMDs have already begun to the participant, after death distributions must continue to be made in years 1-9 in that situation, with the remaining account balance distributed no later than year 10.”

Along with “many minor clarifications, the proposed regulations include significant additions to trust beneficiary look-through rules and rules on whether certain annuity policy features are treated as satisfying the RMD rules,” Cohen added.

The IRS’ plan will be out for a 90-day public comment period once published in the Federal Register on Thursday, and a public hearing is scheduled for June 15.

The regs contain proposed regulations relating to RMDs from qualified plans; Section 403(b) annuity contracts, custodial accounts, and retirement income accounts; individual retirement accounts and annuities; and eligible deferred compensation plans under Section 457.

The regs affect administrators of, and participants in, those plans as well as owners of IRAs and annuities; employees for whom amounts are contributed to section 403(b) annuity contracts, custodial accounts, or retirement income accounts; and beneficiaries of those plans, contracts, accounts and annuities.

Pictured: Ed Slott. (Photo: Natalie Brasington)