Industry News

On July 14, 2023, the Internal Revenue Service (IRS) issued Notice 2023-54 which provides transition relief and guidance for certain Required Minimum Distributions (RMDs) under Section 401(a)(9) of the Internal Revenue Code. The additional RMD relief follows certain changes enacted under the Setting Every Community Up for Retirement Act of 2019 (SECURE Act) and SECURE 2.0 Act of 2022 (SECURE 2.0).

The 2023 Notice extends the transitional relief that the IRS previously issued in Notice 2022-53 and provides certain transition relief for participants who were born in 1951 and may have been impacted by recent legislative changes. Under the Notice, the IRS issued limited transition relief for plan administrators, payors, plan participants and beneficiaries to address the changes in requirements for RMDs for qualified plans (including 401(k) plans), IRAs, Roth IRAs, 403(b) plans and 457(d) eligible deferred compensation plans made by the SECURE Act and the SECURE 2.0 Act.

As background, the SECURE Act increased the age for determining an individual’s Required Beginning Date (RBD) to age 72 and added a new 10-year rule for trusts and certain individuals (which include an individual beneficiary who does not qualify as an Eligible Designated Beneficiary). This 10-year rule generally requires trusts and certain beneficiaries to distribute the remainder of their portion of a retirement account within 10 years of the account owner’s death. In February 2022, the IRS also released proposed regulations implementing the RMD changes in the SECURE Act. The IRS indicated that the 10-year rule applied in addition to the “at least as rapidly” rule. Generally, the “at least as rapidly” rule provides that if the participant dies after the RBD for taking RMDs, then the RMDs for years after the participant’s death must be based on the longer of the beneficiary’s or the participant’s life expectancy.

In addition, the SECURE 2.0 Act increased the RBD from age 72 to age 73 as of January 1, 2023 and age 75 starting on January 1, 2033. Before the change under SECURE 2.0, a participant that attained age 72 (born in 1951) in 2023 would have an RBD of April 1, 2024. However, after the change, the increase to age 73 for those born in 1951 does not have an RMD for 2023, but rather the RBD is April 1, 2025 for 2024 RMD payments. The IRS granted relief related to 2023 distributions that were mischaracterized as RMDs due to the change in the RBD from age 72 to 73.

Specifically, Notice 2023-54: 1) extends the effective date of the final RMD regulations that the U.S. Treasury and IRS intend to issue related to RMDs (for all plan types) for another year to now be effective for calendar years beginning no earlier than the 2024 distribution calendar year; 2) provides rollover relief to plan sponsors and participants/IRA owners that were born in 1951 (as well as their surviving spouses) that received a distribution between January 1, 2023 and July 31, 2023, which includes extending the rollover period through September 30, 2023; and 3) eliminates the need for 2023 RMD payments for beneficiaries under the combination of the 10-year rule and the ‘at least as rapidly’ rule. 

IRS Notice 2023-54 is available here.