The IRS has issued final regulations on the changes made to the required minimum distribution rules, as reflected by the SECURE Act of 2019 (Public Law 116-94), and the SECURE 2.0 Act of 2022 (Public Law 117-328).
The final regulations apply for distribution calendar years beginning on or after January 1, 2025. The final regulations generally follow the proposed regulations issued in 2022, with a few minor changes.
Prior to 2020, taxpayers in general were required to begin taking required minimum distributions (RMDs) from qualified retirement plans and IRAs by April 1 of the calendar year following the calendar year in which the individual reaches age 70½. Each subsequent RMD after the first year must be made by December 31 of each year.
Under the SECURE Act of 2019, the 70½ age threshold was increased to age 72, effective for distributions required to be made after December 31, 2019.
Under the CARES Act, no minimum distributions were required for calendar year 2020. Thus, the first calendar year the age 72 threshold applied was for 2021 (RMDs required to begin by April 1 of 2022 for individuals turning age 72 in 2021).
The SECURE 2.0 Act replaced the age 72 threshold with the following age thresholds.
- Age 73 starting in 2023.
- Age 75 starting in 2033.
The final regulations adopt these changes.
10-year rule
The final regulations also provide details on how the new 10-year rule applies to designated beneficiaries that die on or after January 1, 2020.
Prior to the SECURE Act, if an employee died before the required minimum distributions (RMDs) had begun, the employee’s interest must either be:
- Distributed within 5 years after the death of the employee (5-year rule), or
- Distributed over the life or life expectancy of the designated beneficiary with the distributions beginning no later than 1 year after the date of the employee’s death (with an exception if the designated beneficiary was the employee’s surviving spouse).
Under the SECURE Act, the 5-year period under the 5-year rule is lengthened to 10 years (10-year rule). The 10-year rule applies regardless of whether the employee dies before the required beginning date. An exception to the 10-year rule applies if the beneficiary is an eligible designated beneficiary, in which case distributions are paid over the designated beneficiary’s lifetime or life expectancy. An eligible designated beneficiary is either:
- The surviving spouse of the employee,
- A child of the employee who has not reached the age of majority ( once he or she reaches the age of majority, the 10-year rule applies),
- A disabled individual,
- A chronically ill individual, or
- An individual who is not more than 10 years younger than the employee.
When an employee or IRA owner dies on or after their required beginning date and their beneficiary follows the 10-year distribution rule, the beneficiary must continue to take annual distributions until the end of the 10-year period, when full distribution is required. This rule also applies after the death of an eligible designated beneficiary taking life expectancy payments and a minor child beneficiary’s attainment of the age of majority.
Note: Prior to the 10-year rule, designated beneficiaries had 5 years to take a full distribution.
However, they could wait until the end of the 5 years to take the full distribution. The proposed regulations adopted a controversial 10-year rule which requires annual distributions, with any remaining amount required to be distributed in full at the end of 10 years. However, Notice 2022-53 provided special transitional relief for 2021 and 2022 in which no RMDs were taken. The final regulations retain this rule.
For details, see the final regulations found on the Federal Register website.
