The U.S. Treasury and IRS issued updated guidance on RMDs from IRAs, generally retaining the proposed rules.
On July 18, 2024, the U.S. Treasury Department (Treasury) and Internal Revenue Service (IRS) issued final regulations to update the required minimum distribution (RMD) rules for changes made by the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) and certain changes made by the SECURE 2.0 Act. They concurrently issued proposed regulations for certain other SECURE 2.0 Act RMD changes not addressed in the final regulations. The summary below highlights the key provisions affecting IRA owners and their beneficiaries.
While the final and proposed regulations were issued on the same day, the final regulations take effect September 17, 2024 (60 days following their date of publication in the Federal Register) and are generally applicable beginning January 1, 2025. Written comments regarding the proposed regulations will be accepted until September 17, 2024, and a public hearing held to discuss the proposed regulations will take place September 25, 2024. We anticipate additional guidance may be issued following the public hearing and will provide updates as necessary.
Payments During Owner’s Lifetime
- Start date for RMDs – The staggered ages for RMDs based on the owner’s date of birth are as follows. (Proposed regulations confirm that owners born in 1959 will begin RMDs at age 73 as there seemed to be confusion within the industry.)
- Lower excess accumulation penalty – Failing to take RMDs when due generally results in an excess accumulation penalty equal to 25 percent of the RMD shortfall for the year. This penalty can be further reduced to 10 percent if, by the end of the correction window, the individual receives a distribution representing the shortfall and files a tax return that reflects the reduced penalty.
The final regulations provide an extended relief period for beneficiaries. If the IRA owner dies before satisfying their RMD for a calendar year, the beneficiary has until the end of the year following the IRA owner’s death to take the missed RMD and qualify for the reduced penalty.
In addition, the proposed regulations indicate that these corrective distributions representing RMDs not taken in a prior year are not eligible for rollover and do not count towards the RMD due in the year the corrective distribution is taken. - RMD for the year of death – The final regulations confirm that if there are multiple beneficiaries named on an IRA, the year of death RMD is no longer required to be satisfied pro rata by each beneficiary. For example, Sue Jones, dies in 2025 at age 82. Her RMD for 2025 was $5,500. She did not take any distributions during 2025 prior to her passing. Her two beneficiaries (each designated to receive 50 percent of her IRA) can each take $2,750, or the full RMD of $5,500 can be satisfied by one of the two beneficiaries.
- Expanded RMD rollover restriction – Historically, once an IRA owner reaches their first distribution calendar year (the first year for which an RMD is required), no distribution from their IRA is eligible for rollover until after the RMD for that IRA has been satisfied. Under the final regulations, if an IRA owner has multiple IRAs, the aggregate RMD must be satisfied from all IRAs of the account owner before any IRA distribution can be rolled over.
Payments Following Owner’s Death
- Clarification of 10-year rule for post death RMDs to designated beneficiaries – The final regulations confirm that annual RMDs—once formally begun by the owner—must continue regardless of whether the 10-year payout requirement is applicable. Therefore, when death occurs on or after the required beginning date (RBD) and the 10-year option applies, an annual distribution is required to be taken each year of the 10-year period.
Generally, when IRA owners or beneficiaries are required to take a distribution and fail to do so (as may have been the case when death occurred after the RBD and beneficiaries did not take distributions “at least as rapidly” when applying the 10-year option prior to these regulations), they are subject to an excess accumulation penalty. The IRS has granted transitional relief from this penalty for beneficiaries within IRS Notices 2022-53, 2023-54, and 2024-35. See IRS Announces Relief for Certain 2024 Beneficiary Distributions for more details related to the relief. - Increased options and flexibility for trust beneficiaries – The final regulations allow see-through trusts that by design, terminate immediately and are broken into multiple trusts at death, the ability to treat each of the separate break-away trusts as a separate see-through trust and allow the options of each of those trusts to be determined using their own eligible designated beneficiary (EDB) status.
The proposed regulations seem to allow direct distributions to beneficiaries of see-through trusts without the trust terminating immediately and dividing into separate sub-trusts. There are still unanswered questions, but it appears that the IRS is opening up to the concept of allowing distributions directly to trust beneficiaries. Hopefully more guidance will be provided following the comment period. - Greater flexibility for spousal beneficiaries – If the owner dies prior to their RBD, the sole spouse beneficiary may delay taking annual distributions until the decedent would have attained RMD age. When distributions are required to begin to the spouse beneficiary, the final regulations permit the spouse beneficiary to calculate annual distributions using the Uniform Lifetime Table (vs the Single Life Table). This results in smaller RMDs for the spouse beneficiary. The use of the Uniform Lifetime Table is only available for spouse beneficiaries beginning beneficiary RMDs in 2024 or later. It does not apply if distributions were required to begin during 2023 or earlier.
If the IRA owner dies on or after the RBD, the proposed regulations allow plans to either default to the Uniform Lifetime Table calculation based on the spouse beneficiary’s age or the Single Life Table based on the longer of the spouse beneficiary’s age, recalculated, or the deceased owner’s age determined in the year of death, not recalculated. Plan agreements will outline which default is determined. - Deadline for spouse beneficiary to treat as own – Under the 2022 proposed regulations the deadline for a spouse beneficiary to treat the IRA as her own via a transfer was December 31 of the year following the owner’s death or December 31 of the year the spouse beneficiary attains RMD age. The final regulations eliminate the deadline for a spouse beneficiary to treat the IRA as their own but imposes a new “hypothetical RMD” restriction that includes scenarios involving both transfers and rollovers.
In applying the final regulations, if an IRA owner dies before the RBD and the spouse beneficiary elects the 10-year option and chooses to treat the IRA as her own after reaching her RBD, hypothetical RMDs apply and the hypothetical RMD amount would not be eligible to be rolled or transferred to the spouse’s own IRA.
The proposed regulations provide in-depth guidance on how to calculate the hypothetical RMD and determine what amounts would not be eligible for rollover. Due to the complexities of this calculation, spouse beneficiaries should seek competent tax advice for assistance in computing the hypothetical RMD amount. - Elimination of early force-out rule for older beneficiary – Prior to the final regulations, if an IRA owner died on or after the RBD and the EDB was older than the decedent, the annual distributions required each year could be determined using the deceased owner’s non-recalculated single life expectancy, but a total distribution was required once the EDB’s non-recalculated single life expectancy fell below 1.0. The final regulations eliminate the requirement to force a distribution when the beneficiary’s life expectancy falls below 1.0 and allow the beneficiary to continue to use the decedent’s non recalculated life expectancy for the duration of payments.
- Definition of child clarified for EDB determination – The final regulations clarify the definition of a child for EDB determination includes natural born children as well as stepchildren, adopted children, and eligible foster children.
- Extended withdrawal deadline when multiple minor child EDBs – The 2022 proposed regulations required a total distribution by the end of the tenth year following the year in which the oldest child EDB attained age 21. The final regulations extend the withdrawal deadline and require a total distribution by the end of the tenth year following the year in which the youngest child EDB attains age 21.
Miscellaneous Administrative Requirements
- Elimination of requirement to verify chronic illness or disability – Going forward, the requirement to verify disability or chronic illness only applies to 401(k) plan administrators, and not IRA trustees/custodians. Organizations that are assisting beneficiaries in determining their options following an IRA owner’s death (or organizations working with third parties who provide this service) may still require some type of certification as part of their determination process. Instead of requiring a doctor certification of chronic illness or the Social Security confirmation of disability, organizations may allow self-certification of the beneficiary.
- Elimination of requirement to obtain trust documentation upon death of IRA owner – Prior to the final regulations, IRA trustees/custodians and qualified plan administrators were required to obtain certain trust documentation to determine if the trust was a qualified see-through trust. Under the final regulations, IRA providers are no longer required to gather documentation concerning the underlying trust beneficiaries for a trust beneficiary to qualify as a see-through trust. Organizations that are assisting beneficiaries in determining their options following an IRA owner’s death (or organizations working with third parties who provide this service) may still require some type of certification as part of their determination process. Instead of requesting the trust document and all amendments for review, organizations may allow self-certification by the trustee.