Transition Relief and Guidance Relating to Certain Required Minimum Distributions

Transition Relief and Guidance Relating to Certain Required Minimum Distributions

Notice 2023-54

I. PURPOSE

This notice provides transition relief for plan administrators, payors, plan

participants, IRA owners, and beneficiaries in connection with the change in the

required beginning date for required minimum distributions (RMDs) under § 401(a)(9) of

the Internal Revenue Code (Code) pursuant to § 107 of the SECURE 2.0 Act of 2022

(SECURE 2.0 Act), enacted on December 29, 2022, as Division T of the Consolidated

Appropriations Act, 2023, Pub. L. 117-328, 136 Stat. 4459 (2022). This notice also

provides guidance related to certain specified RMDs for 2023. In addition, this notice

announces that the final regulations that the Department of the Treasury (Treasury

Department) and the Internal Revenue Service (IRS) intend to issue related to RMDs

will apply for purposes of determining RMDs for calendar years beginning no earlier

than 2024.

II. BACKGROUND

A. Section 401(a)(9)

Section 401(a)(9) of the Code requires a stock bonus, pension, or profit-sharing

plan described in § 401(a) (or an annuity contract described in § 403(a)) to make

minimum distributions starting by the required beginning date (as well as minimum

distributions to beneficiaries if the employee dies before the required beginning date).

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Individual retirement accounts and individual retirement annuities (IRAs) described in

§ 408(a) and (b), annuity contracts, custodial accounts, and retirement income accounts

described in § 403(b) (§ 403(b) plans), and eligible deferred compensation plans under

§ 457(b), are also subject to the rules of § 401(a)(9) pursuant to §§ 408(a)(6) and (b)(3),

403(b)(10), and 457(d)(2), respectively, and the regulations under those sections.

B. Required Beginning Date

Section 107 of the SECURE 2.0 Act amended § 401(a)(9) of the Code to change

the required beginning date applicable to § 401(a) plans and other eligible retirement

plans, including IRAs. Rather than defining the required beginning date by reference to

April 1 of the calendar year following the calendar year in which an individual attains

age 72, the new required beginning date for an employee or IRA owner is defined by

reference to April 1 of the calendar year after the calendar year in which the individual

attains the applicable age (which is either age 73 or age 75, depending on the

individual’s date of birth). Thus, for example, an IRA owner who was born in 1951 will

have a required beginning date of April 1, 2025, rather than April 1, 2024, (and the first

distribution made to that IRA owner that will be treated as an RMD will be a distribution

made for 2024, rather than 2023).

C. RMD Distribution Period

Section 401(a)(9) provides rules for RMDs from a qualified plan during the life of

the employee in § 401(a)(9)(A) and after the death of the employee in § 401(a)(9)(B). In

addition to setting forth a required beginning date for distributions, these rules identify

the period over which the employee’s entire interest must be distributed.

Specifically, § 401(a)(9)(A)(ii) provides that the entire interest of an employee in a

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qualified plan must be distributed, beginning not later than the employee’s required

beginning date, in accordance with regulations, over the life of the employee or over the

lives of the employee and a designated beneficiary (or over a period not extending

beyond the life expectancy of the employee and a designated beneficiary).

Section 401(a)(9)(B)(i) provides that, if the employee dies after distributions have

begun, the employee’s remaining interest must be distributed at least as rapidly as

under the method of distributions being used by the employee under section

401(a)(9)(A)(ii) as of the date of the employee’s death. Section 401(a)(9)(B)(ii) and (iii)

provides that, if the employee dies before RMDs have begun, the employee’s interest

must either be: (1) distributed within 5 years after the death of the employee (5-year

rule), or (2) distributed (in accordance with regulations) 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 (subject to an exception in § 401(a)(9)(B)(iv) if the

designated beneficiary is the employee’s surviving spouse).

The rules of § 401(a)(9) are incorporated by reference in § 408(a)(6) and (b)(3)

for IRAs, § 403(b)(10) for § 403(b) plans), and § 457(d) for eligible deferred

compensation plans.

D. Section 401(a)(9)(H) as added by the SECURE Act

1. Ten-year rule

Section 401(a)(9) of the Code was amended by § 401(a)(1) of the Setting Every

Community Up for Retirement Enhancement Act of 2019 (SECURE Act), enacted on

December 20, 2019, as Division O of the Further Consolidated Appropriations Act,

2020, Pub. L. 116-94, 133 Stat. 2534 (2019), to add § 401(a)(9)(H) to the Code.

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Generally, pursuant to § 401(a)(9)(H)(i), if an employee in a defined contribution plan

has a designated beneficiary, the 5-year period under the 5-year rule is lengthened to

10 years (10-year rule) and the 10-year rule applies regardless of whether the employee

dies before the required beginning date. In addition, pursuant to § 401(a)(9)(H)(ii), the

§ 401(a)(9)(B)(iii) exception to the 10-year rule (under which the 10-year rule is treated

as satisfied if distributions are paid over the designated beneficiary’s lifetime or life

expectancy) applies only if the designated beneficiary is an eligible designated

beneficiary, as that term is defined in § 401(a)(9)(E)(ii).

Section 401(a)(9)(H)(iii) provides that when an eligible designated beneficiary

dies before that individual’s portion of the employee’s interest in the plan has been

entirely distributed, the beneficiary of the eligible designated beneficiary will be subject

to a requirement that the remainder of that individual’s portion be distributed within 10

years of the eligible designated beneficiary’s death. In addition, § 401(a)(9)(E)(iii)

provides that when an eligible designated beneficiary who is a minor child of the

employee reaches the age of majority, that child will no longer be considered an eligible

designated beneficiary and the remainder of that child’s portion of the employee’s

interest in the plan must be distributed within 10 years of that date.

2. Section 401(a)(9)(H) effective date

Section 401(b)(1) of the SECURE Act provides that, generally, the amendments

made to § 401(a)(9)(H) of the Code apply to distributions with respect to employees

who die after December 31, 2019. Pursuant to § 401(b)(2) and (3) of the SECURE Act,

later effective dates apply for certain collectively bargained plans and governmental

plans (as defined in § 414(d) of the Code).

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Section 401(b)(4) of the SECURE Act provides that § 401(a)(9)(H) of the Code

does not apply to payments under certain annuity contracts under which payment

commenced (or the manner of payments was fixed) before December 20, 2019.

Section 401(b)(5) of the SECURE Act provides that if an employee who participated in a

plan died before § 401(a)(9)(H) of the Code became effective with respect to the plan,

and the employee’s designated beneficiary died after that effective date, then that

designated beneficiary is treated as an eligible designated beneficiary and

§ 401(a)(9)(H) applies to any beneficiary of that designated beneficiary.

E. Excise tax under § 4974(a)

Section 4974(a) provides that if the amount distributed during a year to a payee

under any qualified retirement plan (as defined in § 4974(c)) or any eligible deferred

compensation plan (as defined in § 457(b)) is less than that year’s minimum required

distribution (as defined in § 4974(b)), then an excise tax is imposed on the payee.

Pursuant to § 302 of the SECURE 2.0 Act, for taxable years beginning after December

29, 2022, this excise tax is equal to 25 percent of the amount by which the minimum

required distribution for a year exceeds the amount actually distributed in that year. If a

failure to take a minimum required distribution is corrected by the end of the correction

window (generally, the end of the second year that begins after the year of the missed

minimum required distribution), the excise tax is reduced from 25 percent to 10 percent.

F. Section 401(a)(9) proposed regulations

The Treasury Department and the IRS published proposed regulations regarding

RMDs under § 401(a)(9) of the Code and related provisions in the Federal Register on

February 24, 2022 (87 FR 10504), which provided that the regulations, when finalized,

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would apply beginning with the 2022 calendar year. Along with other matters, the

proposed regulations address issues relating to the 10-year rule in § 401(a)(9)(H).

Specifically, Prop. Reg. § 1.401(a)(9)-5(d)(1)(i) requires that, in the case of an employee

who dies on or after the employee’s required beginning date, distributions to the

employee’s beneficiaries for calendar years after the calendar year of the employee’s

death must satisfy § 401(a)(9)(B)(i). In addition, distributions to the employee’s

beneficiaries must also satisfy § 401(a)(9)(B)(ii) (or if applicable, § 401(a)(9)(B)(iii)),

taking into account § 401(a)(9)(E)(iii), (H)(ii), and (H)(iii).

In order to satisfy § 401(a)(9)(B)(i), the beneficiary of an employee who died after

the employee’s required beginning date must take an annual RMD beginning in the first

calendar year after the calendar year of the employee’s death. In order to satisfy §

401(a)(9)(B)(ii) (applied by substituting “10 years” for “5 years”), the remaining account

balance must be distributed by the 10th calendar year after the calendar year of the

employee’s death (subject to an exception under § 401(a)(9)(B)(iii), if applicable). In

order to satisfy both of those requirements, the proposed regulations generally provide

that, in the case of an employee who dies after the employee’s required beginning date

with a designated beneficiary who is not an eligible designated beneficiary (and for

whom the § 401(a)(9)(B)(iii) alternative to the 10-year rule is not applicable), annual

RMDs must continue to be taken after the death of the employee, with a full distribution

required by the end of the 10th calendar year following the calendar year of the

employee’s death.

In the case of a designated beneficiary who is an eligible designated beneficiary,

the proposed regulations include an alternative to the 10-year rule under which annual

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lifetime or life expectancy payments would be made to the beneficiary beginning in the

year following the year of the employee’s death, in accordance with § 401(a)(9)(B)(iii).

Under the proposed regulations, if an eligible designated beneficiary of an employee is

using the lifetime or life expectancy payment alternative to the 10-year rule, then the

eligible designated beneficiary (and, after the death of the eligible designated

beneficiary, the beneficiary of the eligible designated beneficiary) would need to

continue to take annual RMDs after the death of the employee (with the employee’s

entire interest distributed by no later than the 10th year after the year of the eligible

designated beneficiary’s death). The proposed regulations provide for similar treatment

(that is, continued annual RMDs with a requirement that the employee’s entire interest

be distributed no later than the 10th year after a specified event) in the case of a

designated beneficiary who is a minor child of the employee (with the specified event

being the child’s reaching the age of majority).

G. Comments received by the Treasury Department and the IRS

The Treasury Department and the IRS provided a 90-day comment period for the

proposed regulations. Some individuals who are owners of inherited IRAs or are

beneficiaries under defined contribution plans submitted comments indicating that they

thought the new 10-year rule would apply differently than it would under the proposed

regulations. Specifically, these commenters expected that, regardless of when an

employee died, the 10-year rule would operate like the 5-year rule, such that there

would not be any RMD due for a calendar year until the last year of the 5- or 10-year

period following the specified event (the death of the employee, the death of the eligible

designated beneficiary, or the attainment of the age of majority for the employee’s child

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who is an eligible designated beneficiary). Commenters who are heirs or beneficiaries of

individuals who died in 2020 explained that they did not take an RMD in 2021 and were

unsure of whether they would be required to take an RMD in 2022. Commenters

asserted that, if final regulations adopt the interpretation of the 10-year rule set forth in

the proposed regulations, the Treasury Department and the IRS should provide

transition relief for failure to take distributions that are RMDs due in 2021 or 2022

pursuant to § 401(a)(9)(H) in the case of the death of an employee (or designated

beneficiary) in 2020 or 2021.

In response to the comments received on the proposed regulations, the Treasury

Department and the IRS issued Notice 2022-53, 2022-45 IRB 437. Notice 2022-53

announced that the final regulations will apply no earlier than the 2023 distribution

calendar year and provided guidance regarding certain amounts that were not paid in

2021 or 2022. Specifically, Notice 2022-53 provided that a defined contribution plan will

not fail to be qualified for failing to make a specified RMD (as defined in that notice) in

2021 or 2022 and the taxpayer who did not take a specified RMD will not be subject to

the excise tax under § 4974 for failing to take the specified RMD.

H. Eligible Rollover Distributions

Section 402(c) generally provides that the payment of any portion of an

employee’s interest in a qualified trust to the employee or the employee’s surviving

spouse in an eligible rollover distribution is not includible in gross income if the

distribution is rolled over to an eligible retirement plan described in § 402(c)(8) no later

than the 60th day following the day of receipt. An eligible rollover distribution is defined

in § 402(c)(4) as a distribution to an employee of all or any portion of the balance to the

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credit of the employee in a qualified trust other than a distribution that is: (A) one of a

series of substantially equal periodic payments made over a specified period; (B) a

distribution required under § 401(a)(9) 1; or (C) a distribution made on account of the

employee’s hardship. Section 402(c)(3)(B) provides that the Secretary may waive the

60-day rollover deadline under certain circumstances. Section 402(c)(11) provides for

the direct rollover of a deceased employee’s interest in a qualified trust to an inherited

IRA established for the deceased employee’s nonspouse designated beneficiary.

Section 401(a)(31) provides that a trust does not constitute a qualified trust

unless the plan of which the trust is a part provides that, if the distributee of any eligible

rollover distribution elects to have the distribution paid directly to an eligible retirement

plan and specifies the eligible retirement plan to which the distribution is to be paid, the

distribution will be made in the form of a direct trustee-to-trustee transfer. Within a

reasonable period of time prior to making an eligible rollover distribution, the plan

administrator of a plan qualified under § 401(a) is required to provide to the recipient the

written explanation described in § 402(f)(1).

Rules similar to those described in the preceding two paragraphs apply to

§ 403(a) annuity plans, § 403(b) plans, and § 457 eligible governmental plans. See

§§ 403(a)(4) and (5), 403(b)(8) and (10), and 457(d)(1)(C) and (e)(16).

If the recipient of an eligible rollover distribution does not elect in accordance with

§ 401(a)(31) to have the distribution paid directly to an eligible retirement plan described

in § 402(c)(8), then under § 3405(c), the payor of the distribution is required to withhold

Under § 1.402(c)-2, in determining which amounts are treated as eligible rollover distributions, if a

minimum distribution is required for a calendar year, the amounts distributed during that calendar year are

treated as RMDs to the extent that the total RMD under § 401(a)(9) for the calendar year has not been

satisfied.

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from the distribution an amount equal to 20 percent of the distribution.

Section 408(d)(3) generally provides that an amount distributed from an IRA to

the IRA owner, or to the surviving spouse of the IRA owner, is not included in gross

income if the distribution is rolled over to an eligible retirement plan no later than the

60th day following the day of receipt. A distribution of an after-tax amount may only be

rolled over to another IRA. Section 408(d)(3)(B) provides that an IRA owner may roll

over only one IRA distribution in a 12-month period, and § 408(d)(3)(E) provides that an

RMD may not be rolled over. Section 408(d)(3)(I) provides that the Secretary may waive

the 60-day rollover deadline under certain circumstances.

III. APPLICABILITY DATE OF FINAL REGULATIONS

Final regulations regarding RMDs under § 401(a)(9) and related provisions will

apply for calendar years beginning no earlier than 2024.

IV. RELIEF RELATING TO CHANGE IN REQUIRED BEGINNING DATE UNDER

SECURE 2.0 ACT

Following enactment of the SECURE 2.0 Act, plan administrators and other

payors indicated that automated payment systems would need to be updated to reflect

the change in the required beginning date under § 401(a)(9)(C) pursuant to § 107 of the

SECURE 2.0 Act. They expressed concern that these revisions could take some time to

implement and, as a result, plan participants and IRA owners who would have been

required to begin receiving RMDs for calendar year 2023 but for § 107 of the SECURE

2.0 Act (i.e., those who will attain age 72 in 2023) and who receive distributions in 2023

could have had those distributions mischaracterized as RMDs (and therefore ineligible

for rollover). This Section IV grants certain relief relating to certain distributions made

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during 2023 to individuals that were characterized as RMDs but are not actually RMDs

as a result of the enactment of § 107 of the SECURE 2.0 Act.

A.

Payor and plan administrator guidance related to SECURE 2.0 Act change

to required beginning date. A payor or plan administrator will not be considered to have

failed to satisfy the requirements of §§ 401(a)(31), 402(f), and 3405(c) merely because

of a failure to treat certain distributions as eligible rollover distributions. This relief

applies with respect to any distribution made from a plan between January 1, 2023, and

July 31, 2023, to a participant born in 1951 (or that participant’s surviving spouse) that

would have been an RMD but for the change in the required beginning date under § 107

of the SECURE 2.0 Act.

B.

Extension of 60-day deadline for rollover of certain distributions. Pursuant to

§ 402(c)(3)(B), the Treasury Department and the IRS are extending the 60-day rollover

period for any distribution described in section IV.A of this notice so that the deadline for

rolling over such a distribution will be September 30, 2023. For example, if a participant

who was born in 1951 received a single-sum distribution in January 2023, part of which

was treated as ineligible for rollover because it was mischaracterized as an RMD, that

participant will have until September 30, 2023, to roll over that mischaracterized part of

the distribution.

C.

Relief relating to RMDs previously distributed from an IRA. Pursuant to

§ 408(d)(3)(I), the Treasury Department and the IRS are extending the 60-day rollover

period for certain IRA distributions made to an IRA owner (or the IRA owner’s surviving

spouse), so that the deadline for rolling over that portion of the distribution will be

September 30, 2023. The distributions that are subject to this extension are distributions

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made from an IRA between January 1, 2023, and July 31, 2023, to an IRA owner born

in 1951 (or that individual’s surviving spouse) that would have been RMDs but for the

change in the required beginning date under § 107 of the SECURE 2.0 Act. This

rollover is permitted even if the IRA owner or surviving spouse has rolled over a

distribution within the last twelve months. However, making such a rollover of the

portion of an IRA distribution mischaracterized as an RMD will preclude the IRA owner

or surviving spouse from rolling over a distribution in the next twelve months. In that

case, that individual could still make a direct trustee-to-trustee transfer as described in

Rev. Rul. 78-406, 1978-2 CB 157.

V. GUIDANCE FOR SPECIFIED RMDs FOR 2023

A.

Guidance for defined contribution plans that did not make a specified RMD.

A defined contribution plan that failed to make a specified RMD (as defined in section

V.C of this notice) will not be treated as having failed to satisfy § 401(a)(9) merely

because it did not make that distribution.

B.

Guidance for certain taxpayers who did not take a specified RMD. To the

extent a taxpayer did not take a specified RMD (as defined in section V.C of this notice),

the IRS will not assert that an excise tax is due under § 4974.

C.

Definition of specified RMD. For purposes of this notice, a specified RMD is

any distribution that, under the interpretation included in the proposed regulations,

would be required to be made pursuant to § 401(a)(9) in 2023 under a defined

contribution plan or IRA that is subject to the rules of § 401(a)(9)(H) for the year in

which the employee (or designated beneficiary) died if that payment would be required

to be made to:

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•

a designated beneficiary of an employee under the plan (or IRA owner) if:

(1) the employee (or IRA owner) died in 2020, 2021, or 2022, and on or

after the employee’s (or IRA owner’s) required beginning date, and (2) the

designated beneficiary is not using the lifetime or life expectancy payments

exception under § 401(a)(9)(B)(iii); or

•

a beneficiary of an eligible designated beneficiary (including a designated

beneficiary who is treated as an eligible designated beneficiary pursuant to

§ 401(b)(5) of the SECURE Act) if: (1) the eligible designated beneficiary

died in 2020, 2021, or 2022, and (2) that eligible designated beneficiary was

using the lifetime or life expectancy payments exception under

§ 401(a)(9)(B)(iii) of the Code.

VI. DRAFTING INFORMATION

The principal author of this notice is Jessica Weinberger of the Office of

Associate Chief Counsel (Employee Benefits, Exempt Organizations, and Employment

Taxes). For further information regarding this notice, contact Jessica Weinberger at

(202) 317-6349 (not a toll-free call).

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