Ed Slott: New IRS Guidance Clarifies 2023 RMDs

New guidance issued by the Internal Revenue Service gives IRA providers until April 28 to notify IRA owners who will turn 72 in 2023 that they do not have a required minimum distribution this year, according to Ed Slott of Ed Slott & Co.

The Setting Every Community Up for Retirement Enhancement (Secure) 2.0 Act, signed into law by President Joe Biden as part of a spending bill on Dec. 29, 2022, raised the age at which RMDs must start, beginning this year.

Because the law was enacted so late in the year, “financial institutions were not able to stop the presses on RMD notices that were sent out to IRA owners notifying them that they have an RMD due for 2023 when they in fact did not,” Slott said. “It only takes one small change like this enacted late in the year to throw the RMD rules into turmoil.”

The IRS relief in Notice 2023-23 was granted to financial institutions “because they may have sent out unintentionally incorrect RMD info to their IRA holders,” Slott told ThinkAdvisor on Monday.

Advisors, Slott said, “should contact every client with an IRA who turned 72 last year, or will turn 72 this year, and let them know when they must begin taking RMDs. The notices they received from their IRA institutions may be incorrect.”

Under the original Secure Act of 2019, which increased the RMD age from 70 ½ to 72, these IRA owners would be subject to RMDs in 2023.

“However, Secure 2.0 increased that age to 73, so now these IRA owners are not subject to RMDs for this year,” Slott said.

With the new IRS guidance, the financial institutions now have until April 28, 2023, “to notify these IRA owners (who will turn age 72 this year) that they actually do not have an RMD this year.”

To “compound the RMD confusion,” Slott stated, IRS in this March 7 notice “encourages the financial institutions to let their IRA holders know that Secure 2.0 did not change the RMD date for those who turned age 72 last year.”

Groom Law Group explained in a recent alert that with the guidance, the IRS clarified that:

• The January 2023 RMD statement should not be sent to IRA owners who will attain age 72 in 2023. If the statement was issued for a participant where no 2023 RMD is required (e.g., an IRA owner who attains age 72 in 2023), the statement will not be considered incorrect if the IRA owner is notified by the financial institution no later than April 28, 2023 that no RMD is required for 2023.
• No RMD provisions should be reflected for IRA owners who turn age 72 in 2023 — IRA providers should leave boxes 11, 12a and 12b blank on the 2022 Form 5498.
• The IRS encourages all financial institutions, in communicating these RMD changes, to remind IRA owners who attained age 72 in 2022, and have not yet taken their 2022 RMDs, that they are still required to take those distributions by April 1, 2023.