IRS Provides Transition Relief for 2023 Distributions Characterized as Required Minimum Distributions Under Previous SECURE Act Rules

The IRS recently issued Notice 2023-54, which provides transition relief to address changes made by the SECURE Act and the SECURE 2.0 Act in required minimum distribution (RMD) requirements for qualified plans such as 401(k) plans, IRAs, Roth IRAs, 403(b) plans, and 457(d) eligible deferred compensation plans.

RMD rules ensure that qualified retirement accounts are used for their intended purpose by making accountholders draw down their retirement savings upon reaching a certain age. The adjustments made by the SECURE Act and the SECURE 2.0 Act were intended to preserve that aim while also accounting for continually increasing life expectancy rates among Americans who are living and working longer than ever before.

Accordingly, the SECURE Act increased the age for determining an individual’s required beginning distribution date from 70 1/5 to age 72, which the SECURE 2.0 Act then increased to age 73 beginning January 1, 2023.

Payers and plan administrators have expressed concerns to IRS that they did not have adequate time to update their systems to reflect the changes to RMD rules made by SECURE 2.0, which were signed into law only three days before taking effect. As a result, certain 2023 distributions were characterized as RMDs – and therefore ineligible to be rollover distributions – but should not have been characterized as such under the new rules.

The transition relief clarifies that a payer or plan administrator who did not treat certain distributions made between January 1, 2023, and July 31, 2023, to participants born in 1951 (or their surviving spouses) as eligible rollover distributions (in other words, the distributions were characterized as RMDs) will not be considered to have failed to meet SECURE 2.0 Act requirements.

The relief also extends the 60-day rollover period for these distributions to September 30, 2023, and grants a similar extension to IRA owners (or their surviving spouses) regarding distributions made between January 1, 2023, and July 31, 2023, to IRA owners born in 1951 (or their surviving spouses) that would have been RMDs under the previous rules.

The transition relief also updates previous relief relating to otherwise required RMDs to beneficiaries after the deaths of participants (otherwise known as “specified RMDs”) in 2020 and 2021 to include the same for otherwise required RMDs related to participant deaths in 2022. Accordingly, defined contribution plans will not be treated as failing to satisfy the RMD rules for failure to make a specified RMD in 2023, and no taxpayer will not be subject to an excise tax for having failed to take a specified RMD.

Employers should be aware of this welcomed transition relief and consult with their advisors for further information.

Transition Relief Guidance, Notice 2023-54 »