# Required Minimum Distributions

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URL: https://www.frixlaw.com/law-library/documents/fr%3A2024-14542

## Record

- **Collection:** Federal Register
- **Document type:** Rule
- **Published:** July 19, 2024
- **Citation:** 89 FR 58886

## Text

DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 31, and 54
[TD 10001]
RIN 1545-BP82
Required Minimum Distributions

AGENCY:

Internal Revenue Service (IRS), Treasury.

ACTION:

Final regulations.

SUMMARY:

This document sets forth final regulations relating to required minimum distributions from qualified plans; section 403(b) annuity contracts, custodial accounts, and retirement income accounts; individual retirement accounts and annuities; and certain eligible deferred compensation plans. These regulations affect administrators of, and participants in, those plans; owners of individual retirement accounts and annuities; employees for whom amounts are contributed to section 403(b) annuity contracts, custodial accounts, or retirement income accounts; and beneficiaries of those plans, contracts, accounts, and annuities.

DATES:

Effective date:
These regulations are effective on September 17, 2024.

Applicability date:
Amended §§ 1.401(a)(9)-1 through 1.401(a)(9)-9, 1.403(b)-6(e), and 1.408-8 apply for purposes of determining required minimum distributions for calendar years beginning on or after January 1, 2025. Amended § 1.402(c)-2 applies for distributions on or after January 1, 2025. Amended § 54.4974-1 applies for taxable years beginning on or after January 1, 2025.

FOR FURTHER INFORMATION CONTACT:

Brandon M. Ford at (202) 317-6700 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document sets forth amendments to the Income Tax Regulations (26 CFR part 1) under section 401(a)(9) of the Internal Revenue Code of 1986 (Code). These regulations address the required minimum distribution requirements for plans qualified under section 401(a) and update the regulations to reflect the amendments made to section 401(a)(9) by sections 114 and 401 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, Public Law 116-94, 133 Stat. 2534 (2019) and by various sections 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, Public Law 117-328, 136 Stat. 4459 (2022).

The rules of section 401(a)(9) are adopted by reference in section 408(a)(6) and (b)(3) for individual retirement accounts and individual retirement annuities (collectively, IRAs); section 403(b)(10) for annuity contracts, custodial accounts, and retirement income accounts described in section 403(b) (section 403(b) plans); and section 457(d)(2) for eligible deferred compensation plans. The determination of the required minimum distribution is also relevant for purposes of the related excise tax under section 4974 and the definition of eligible rollover distribution in section 402(c). Accordingly, this document also sets forth conforming amendments to the Income Tax Regulations (26 CFR part 1) under sections 402(c), 403(b), 408, and 457, and to the Pension Excise Tax Regulations (26 CFR part 54) under section 4974.

Section 401(a)(9)—Required Minimum Distributions

Section 401(a)(9) provides rules for distributions from a qualified plan during the life of the employee in section 401(a)(9)(A) and after the death of the employee in section 401(a)(9)(B). The rules set forth a required beginning date for distributions and identify the period over which the employee's entire interest must be distributed.

Specifically, section 401(a)(9)(A)(ii) provides that the entire interest of an employee in a 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 distribution method used by the employee as of the date of the employee's death (referred to in this preamble as the “at least as rapidly” rule).

Section 401(a)(9)(B)(ii) and (iii) provides that, if the employee dies before required minimum distributions have begun, the employee's interest must either be: (1) distributed within 5years after the death of the employee; or (2) distributed (in accordance with regulations) over the life or life expectancy of the designated beneficiary with the distributions generally beginning not later than 1 year after the date of the employee's death.

However, under section 401(a)(9)(B)(iv) (as amended by section 327 of the SECURE 2.0 Act), a surviving spouse may elect to: (1) be treated as if the surviving spouse were the employee for purposes of section 401(a)(9)(B)(iii)(II); (2) wait until the date the employee would have attained the applicable age (as defined in section 401(a)(9)(C)(v)) to begin taking required minimum distributions; and (3) have the beneficiaries of the surviving spouse be treated as beneficiaries of the employee if the surviving spouse dies before distributions to the spouse begin.

Section 401(a)(9)(C)(i) (as amended by section 114 of the SECURE Act and further amended by section 107 of the SECURE 2.0 Act) defines the required beginning date for an employee (other than a 5-percent owner or IRA owner) as April 1 of the calendar year following the later of the calendar year in which the employee attains the applicable age or the calendar year in which the employee retires. Section 401(a)(9)(C)(v)(I) provides that in the case of an individual who attains age 72 after December 31, 2022, and age 73 before January 1, 2033, the applicable age is 73. Section 401(a)(9)(C)(v)(II) provides that in the case of an individual who attains age 74 after December 31, 2032, the applicable age is 75. For a 5-percent owner or an IRA owner, the required beginning date is April 1 of the calendar year following the calendar year in which the individual attains the applicable age, even if the individual has not retired.

Section 401(a)(9)(C)(iii) provides that certain employees who commence benefits under a defined benefit plan after the year in which they attain age 70
1/2
must receive an actuarial increase. However, section 401(a)(9)(C)(iv) provides that the actuarial increase requirement does not apply for a governmental plan or for a church plan (as defined in section 401(a)(9)(C)(iv)).

Section 401(a)(9)(D) provides that (except in the case of a life annuity) the life expectancy of an employee and the employee's spouse (used to measure the period over which payments must be made) may be redetermined, but not more frequently than annually.

Section 401(a)(9)(E)(i) defines the term
designated beneficiary
as any individual designated as a beneficiary by the employee. Section 401(a)(9)(E)(ii) (which was added to the Code as part of section 401 of the SECURE Act) defines the term

eligible designated

beneficiary,

with respect to any employee, as any designated beneficiary who, as of the date of the employee's death, is: (1) the surviving spouse of the employee; (2) a child of the employee who has not reached the age of majority (within the meaning of section 401(a)(9)(F)); (3) disabled (within the meaning of section 72(m)(7)); (4) a chronically ill individual (within the meaning of section 7702B(c)(2), subject to certain exceptions); or (5) an individual not described elsewhere in section 401(a)(9)(E)(ii) who is not more than 10 years younger than the employee.

Section 401(a)(9)(E)(iii) provides that, subject to the rule in section 401(a)(9)(F), the treatment of an employee's child as an eligible designated beneficiary ends when the child attains the age of majority and that any remaining interest must be distributed within 10 years of that date. Section 401(a)(9)(F) provides that, under regulations, any amount paid to a child is treated as if it had been paid to the surviving spouse if it will become payable to the surviving spouse upon that child reaching the age of majority (or other designated event permitted under regulations).

Section 401(a)(9)(G) provides that any distribution required to satisfy the incidental death benefit requirement of section 401(a) is treated as a required minimum distribution.

Section 401(a)(9)(H) (which was added to the Code as part of section 401 of the SECURE Act) provides special rules that generally apply to the distribution of an employee's remaining interest in a defined contribution plan after the death of that employee. Specifically, section 401(a)(9)(H)(i) provides that, except in the case of a beneficiary who is not a designated beneficiary, section 401(a)(9)(B)(ii): (1) is applied by substituting 10 years for 5 years; and (2) applies whether or not distributions of the employee's interest have begun in accordance with section 401(a)(9)(A). Section 401(a)(9)(H)(ii) provides that section 401(a)(9)(B)(iii) (permitting payments over the life or life expectancy of the designated beneficiary as an alternative to the 10-year rule) applies only in the case of an eligible designated beneficiary. Section 401(a)(9)(H)(iii) provides that if an eligible designated beneficiary dies before that individual's portion of the employee's interest in the plan has been entirely distributed, then section 401(a)(9)(H)(ii) does not apply to the beneficiary of the eligible designated beneficiary, and the remainder of that portion must be distributed within 10 years after the death of the eligible designated beneficiary.

Section 401(a)(9)(H)(iv) provides that in the case of an applicable multi-beneficiary trust, if, under the terms of the trust, it is to be divided immediately upon the death of the employee into separate trusts for each beneficiary, then section 401(a)(9)(H)(ii) is applied separately with respect to the portion of the employee's interest that is payable to any disabled or chronically ill eligible designated beneficiary. Section 401(a)(9)(H)(iv) (as amended by section 337 of the SECURE 2.0 Act) also provides that in the case of an applicable multi-beneficiary trust, if, under the terms of the trust, no beneficiary (other than an eligible designated beneficiary who is disabled or chronically ill) has any right to the employee's interest in the plan until the death of all of those disabled or chronically ill eligible designated beneficiaries with respect to the trust, then: (1) section 401(a)(9)(B)(iii) (permitting payments over the life expectancy of a beneficiary) will apply to the distribution of the employee's interest; and (2) any beneficiary who is not disabled or chronically ill will be treated as a beneficiary of the eligible designated beneficiary who is disabled or chronically ill upon the death of that eligible designated beneficiary.

Section 401(a)(9)(H)(v) (as amended by section 337 of the SECURE 2.0 Act) defines the term
applicable multi-beneficiary trust
as a trust: (1) that has more than one beneficiary; (2) all of the beneficiaries of which are treated as designated beneficiaries for purposes of determining the distribution period pursuant to section 401(a)(9); and (3) at least one of the beneficiaries of which is an eligible designated beneficiary who is either disabled or chronically ill. Section 401(a)(9)(H)(v) also provides that, for purposes of that definition, in the case of a trust described in section 401(a)(9)(H)(iv)(II), any beneficiary which is an organization described in section 408(d)(8)(B)(i) is treated as a designated beneficiary.

Section 401(a)(9)(H)(vi) provides that, for purposes of applying section 401(a)(9)(H), an eligible retirement plan defined in section 402(c)(8)(B) (other than a defined benefit plan described in section 402(c)(8)(B)(iv) or (v)
1

or a qualified trust that is a part of a defined benefit plan) is treated as a defined contribution plan.

1
The eligible retirement plans described in sections 402(c)(8)(B)(iv) and (v) are an annuity plan described in section 403(a) and an eligible deferred compensation plan described in section 457(b) that is maintained by an eligible employer described in section 457(e)(1)(A), respectively.

Section 401(a)(9)(J) (which was added to the Code by section 201 of the SECURE 2.0 Act) provides that a commercial annuity (within the meaning of section 3405(e)(6)) that is issued in connection with any eligible retirement plan (within the meaning of section 402(c)(8)(B), other than a defined benefit plan) is not prohibited from making any of the following types of payments: (1) annuity payments that increase by a constant percentage, applied not less frequently than annually, at a rate that is less than 5 percent per year; (2) certain lump sum payments;
2

(3) an amount which is in the nature of a dividend or similar distribution, provided that the issuer of the contract determines the amount using reasonable actuarial methods and assumptions, as determined in good faith by the issuer of the contract, when calculating the initial annuity payments and the issuer's experience with respect to those factors; or (4) a final payment upon death that does not exceed the excess of the total amount of the consideration paid for the annuity payments, less the aggregate amount of prior distributions or payments from or under the contract.

2
Section 401(a)(9)(J)(ii) provides that the lump sum payment must either: (1) result in a shortening of the payment period with respect to an annuity or a full or partial commutation of the future annuity payments, provided that such lump sum is determined using reasonable actuarial methods and assumptions, as determined in good faith by the issuer of the contract; or (2) accelerate the receipt of annuity payments that are scheduled to be received within the ensuing 12 months, regardless of whether the acceleration shortens the payment period with respect to the annuity, reduces the dollar amount of benefits to be paid under the contract, or results in a suspension of annuity payments during the period being accelerated.

Effective Date of SECURE Act Section 401

Generally, under section 401(b)(1) of the SECURE Act, the amendments made by section 401 of the SECURE Act to section 401(a)(9)(E) and (H) of the Code apply to distributions with respect to employees who die after December 31, 2019.

Section 401(b)(2) of the SECURE Act provides that in the case of a plan maintained pursuant to one or more collective bargaining agreements between employee representatives and one or more employers ratified before December 20, 2019, the amendments to section 401(a)(9)(E) and (H) of the Code apply to distributions with respect to employees who die in calendar years beginning after December 31, 2021, or if earlier, the later of: (1) December 31, 2019; and (2) the date on which the last

of the collective bargaining agreements terminated, without regard to any extension agreed to on or after the date of enactment of the SECURE Act (December 20, 2019).

Section 401(b)(3) of the SECURE Act provides that, in the case of a governmental plan (as defined in section 414(d) of the Code), the amendments to section 401(a)(9)(E) and (H) apply to distributions with respect to employees who die after December 31, 2021.

Section 401(b)(4) of the SECURE Act provides that the amendments made to section 401(a)(9)(E) and (H) of the Code do not apply to a qualified annuity that is a binding annuity contract in effect on the date of enactment of the SECURE Act (December 20, 2019) and at all times thereafter.
3

3
Section 401(b)(4)(B) of the SECURE Act provides that the term
qualified annuity
means, with respect to an employee, an annuity—

(i) which is a commercial annuity (as defined in section 3405(e)(6) of the Internal Revenue Code of 1986);

(ii) under which the annuity payments are made over the life of the employee or over the joint lives of such employee and a designated beneficiary (or over a period not extending beyond the life expectancy of such employee or the joint life expectancy of such employee and a designated beneficiary) in accordance with the regulations described in section 401(a)(9)(A)(ii) of such Code (as in effect before such amendments) and which meets the other requirements of section 401(a)(9) of such Code (as so in effect) with respect to such payments; and

(iii) with respect to which—

(I) annuity payments to the employee have begun before the date of enactment of the SECURE Act, and the employee has made an irrevocable election before such date as to the method and amount of the annuity payments to the employee or any designated beneficiaries; or

(II) if subclause (I) does not apply, the employee has made an irrevocable election before the date of enactment of the SECURE Act as to the method and amount of the annuity payments to the employee or any designated beneficiaries.

Section 401(b)(5) of the SECURE Act provides that if an employee dies before the effective date of section 401(a)(9)(H) of the Code for a plan, then, in applying the amendments made to section 401(a)(9)(E) and (H) to the employee's designated beneficiary who dies on or after the effective date, (1) the amendments apply to any beneficiary of the designated beneficiary, and (2) the designated beneficiary is treated as an eligible designated beneficiary for purposes of section 401(a)(9)(H)(ii).

SECURE 2.0 Act Provisions

Prior to amendment by section 107 of the SECURE 2.0 Act, section 401(a)(9)(C) of the Code defined the required beginning date by reference to the calendar year in which the employee attains age 72. Section 107 of the SECURE 2.0 Act changes the age by reference to which the required beginning date is determined from 72 to either 73 or 75 (depending on an employee's date of birth). Section 107(e) of the SECURE 2.0 Act provides that the amendments made by section 107 of the SECURE 2.0 Act apply to distributions required to be made after December 31, 2022, with respect to individuals who attain age 72 after that date.

Section 202 of the SECURE 2.0 Act instructs the Secretary of the Treasury (or that person's delegate) to make certain amendments to § 1.401(a)(9)-6. Those amendments are: (1) to eliminate the requirement that premiums for an individual's qualifying longevity annuity contracts (QLACs) be limited to 25-percent of an individual's account balance; (2) to increase the dollar limitation on premiums for an individual's QLACs from $125,000 to $200,000 (adjusted for inflation); (3) to provide that, in the case of a QLAC purchased with joint and survivor annuity benefits for an individual and the individual's spouse, a divorce occurring after the original purchase and before the date that the annuity payments commence under the contract will not affect the permissibility of the joint and survivor benefits if certain conditions related to an associated qualified domestic relations order (or, if applicable, a divorce or separation agreement) are met; and (4) to provide that a QLAC may include a provision under which an employee may rescind the purchase of the contract within a period not exceeding 90 days from the date of purchase.

Section 204 of the SECURE 2.0 Act instructs the Secretary of the Treasury (or that person's delegate) to amend the section 401(a)(9) regulations to provide that if an employee's benefit is in the form of an individual account under a defined contribution plan, then the plan may allow the employee to elect to have the amount required to be distributed for a calendar year from that account to be calculated as the excess of the total required amount for that year over the annuity amount for that year. For this purpose, section 204(b)(1) of the SECURE 2.0 Act defines the total required amount with respect to a calendar year as the amount that would be required to be distributed under § 1.401(a)(9)-5 by including in the balance of that account the value of all annuity contracts that were purchased with a portion of that account. Section 204(b)(2) of the SECURE 2.0 Act defines the annuity amount with respect to a calendar year as the total amount distributed in that year from all annuity contracts purchased with a portion of the employee's account under the plan. Section 204(c) of the SECURE 2.0 Act instructs the Secretary of the Treasury (or that person's delegate) to make conforming amendments to the regulations that apply to individual retirement plans (as defined in section 7701(a)(37) of the Code), section 403(b) plans, and section 457(b) eligible deferred compensation plans.

Section 325 of the SECURE 2.0 Act amended section 402A of the Code (relating to designated Roth accounts) to add a new paragraph (d)(5) providing that the rules requiring minimum distributions to be paid during the employee's lifetime do not apply to a designated Roth account. Section 325(b)(1) of the SECURE 2.0 Act provides that this amendment applies to taxable years beginning after December 31, 2023. However, section 325(b)(2) of the SECURE 2.0 Act provides that the amendment does not apply to a required minimum distribution for a year beginning before January 1, 2024, that is permitted to be paid by April 1, 2024.

Section 402(c)—Rollovers

Section 402(c) of the Code provides rules related to the rollover of a distribution from a qualified plan to another eligible retirement plan. Prior to being amended by section 641 of the Economic Growth and Tax Relief Reconciliation Act of 2001, Public Law 107-16, 115 Stat. 38 (2001) (EGTRRA), section 402(c)(2) of the Code limited the portion of a distribution that could be rolled over to the amount that would have been includible in income in the absence of the rollover. Section 641 of EGTRRA and section 411(q) of the Job Creation and Worker Assistance Act of 2002, Public Law 107-147, 116 Stat. 21 (2002), expanded the rollover rules to permit a rollover to an IRA of the portion of the distribution that would have been excluded from gross income in the absence of the rollover (that is, the portion of the amount distributed that consists of the employee's investment in the contract). In addition, that portion may be transferred in a direct trustee-to-trustee transfer to a qualified trust or to an annuity contract described in section 403(b) of the Code, but only if the trust or annuity contract separately accounts for the amount that consists of the employee's investment in the contract. If only a portion of an eligible rollover distribution is rolled over or transferred, then the amount rolled over or transferred is treated as consisting first of the portion of the distribution that is not allocable to the employee's investment in the contract.

Under section 402(c), any amount distributed from a qualified plan generally will be excluded from income

if it is transferred to an eligible retirement plan no later than the 60th day following the day the distribution is received. Section 402(c)(3)(B) was added to the Code by section 644 of EGTRRA to provide that the Secretary may waive the 60-day rollover requirement in certain circumstances. Section 402(c)(3)(C) was added to the Code by section 13613 of the Tax Cuts and Jobs Act, Public Law 115-97, 131 Stat. 2054 (2017) (TCJA), to provide an extended rollover deadline for qualified plan loan offset (QPLO) amounts.
4

Specifically, the deadline for rollover of any portion of a QPLO amount is extended so that it ends no earlier than the distributee's tax filing due date (including extensions) for the taxable year in which the offset occurs.

4
A QPLO amount is defined in section 402(c)(3)(C)(ii) as a plan loan offset amount that is distributed from a qualified employer plan to a participant or beneficiary solely by reason of (1) the termination of the qualified employer plan, or (2) the failure to meet the repayment terms of the loan from the plan because of the severance from employment of the participant.

Subject to certain exclusions, section 402(c)(4) provides that an eligible rollover distribution means any distribution to an employee of all or any portion of the balance to the credit of the employee in a qualified plan. Section 402(c)(4)(A) excludes from the definition of an eligible rollover distribution any distribution that is one of a series of substantially equal periodic payments payable for the life (or life expectancy) of the employee (or the employee and the employee's designated beneficiary), or for a specified period of 10 years or more. Section 402(c)(4)(B) provides that any distribution that is required under section 401(a)(9) is excluded from the definition of an eligible rollover distribution. Section 402(c)(4)(C), which was added to the Code by section 636(b)(1) of EGTRRA, excludes hardship distributions from the definition of an eligible rollover distribution.

Prior to being amended by section 641 of EGTRRA, section 402(c)(8)(B) of the Code provided that the only type of eligible retirement plan permitted to receive a rollover from a qualified plan was another qualified plan or an IRA. Section 641 of EGTRRA amended section 402(c)(8)(B) of the Code to expand the list of retirement plans eligible to receive rollovers to include an annuity contract described in section 403(b), and an eligible deferred compensation plan described in section 457(b) that is maintained by an eligible employer described in section 457(e)(1)(A). Section 617(c) of EGTRRA amended section 402(c)(8)(B) of the Code to provide that if any portion of an eligible rollover distribution is attributable to distributions from a designated Roth account (as defined in section 402A), that portion may be rolled over only to another designated Roth account or a Roth IRA (as described in section 408A). Section 641 of EGTRRA also added section 402(c)(10) to the Code to provide that an eligible deferred compensation plan described in section 457(b) maintained by an eligible employer described in section 457(e)(1)(A) may accept rollovers from a different type of eligible retirement plan only if it separately accounts for the amounts rolled into the plan.

Section 402(c)(9) provides that, if any distribution attributable to an employee is paid to the spouse of the employee after the employee's death, then section 402(c) applies to that distribution in the same manner as if the spouse were the employee. At the time section 402(c)(9) was enacted, a surviving spouse was permitted to roll over an eligible rollover distribution only to an IRA. However, section 641 of EGTRRA amended section 402(c)(9) of the Code to expand the type of eligible retirement plan permitted to receive a spousal rollover to include not just an IRA, but also any other eligible retirement plan.

Section 402(c)(11) was added to the Code by section 829 of the Pension Protection Act of 2006, Public Law 109-280, 120 Stat. 780 (2006) (PPA), to provide that an individual who is not the surviving spouse of the employee and who is a designated beneficiary (as defined by section 401(a)(9)(E) of the Code) may elect to have any portion of a distribution made in the form of a direct trustee-to-trustee transfer to an IRA established for the purpose of receiving that distribution. If a direct trustee-to-trustee transfer is made pursuant to section 402(c)(11), then the required minimum distribution rules applicable to distributions after the employee's death in section 401(a)(9)(B) (other than section 401(a)(9)(B)(iv)) will apply to the IRA. Section 402(c)(11)(B) provides that the Secretary may prescribe rules under which a trust for the benefit of one or more designated beneficiaries may be treated as a designated beneficiary for purposes of section 402(c)(11).

The rollover rules of section 402(c) also apply to a distribution from a section 403(a) qualified annuity plan, a section 403(b) plan, and an eligible deferred compensation plan described in section 457(b) maintained by an eligible employer described in section 457(e)(1)(A). See sections 403(a)(4)(B), 403(b)(8)(B), and 457(e)(16)(B), respectively.

Sections 403(a), 403(b), 408, and 457—Other Arrangements Subject to Section 401(a)(9)

Under section 403(a)(1), a qualified annuity plan under section 403(a) must meet the requirements of section 404(a)(2) (which provides that an annuity plan must satisfy the required minimum distribution rules under section 401(a)(9)). Sections 403(b)(10), 408(a)(6), and 408(b)(3) provide that a section 403(b) plan, an individual retirement account, and an individual retirement annuity, respectively, must satisfy rules similar to the requirements of section 401(a)(9) and the incidental death benefit requirements of section 401(a). Under section 457(b)(5) and (d)(2), a plan is an eligible deferred compensation plan described in section 457(b) only if it satisfies the minimum distribution requirements of section 401(a)(9).

Section 4974—Excise Tax on Failure To Satisfy Section 401(a)(9)

Section 4974(a) (as amended by section 302(a) of the SECURE 2.0 Act) provides that if the amount distributed during the taxable year of a payee under any qualified retirement plan (as defined in section 4974(c)) or any eligible deferred compensation plan (as defined in section 457(b)) is less than that taxable year's minimum required distribution (as defined in section 4974(b)), then an excise tax is imposed on the payee equal to 25 percent of the amount by which the minimum required distribution for the taxable year exceeds the amount actually distributed in that taxable year.

Section 4974(d) provides that if the taxpayer establishes to the satisfaction of the Secretary that the failure to distribute the entire amount required in a taxable year was due to reasonable error and reasonable steps are being taken to remedy that shortfall, then the Secretary may waive the excise tax imposed in section 4974(a) for that taxable year.

Section 4974(e) (as added to the Code by section 302(b) of the SECURE 2.0 Act) provides that in the case of a taxpayer who, by the last day of the correction window: (1) receives a distribution from the qualified retirement plan or eligible deferred compensation plan of the amount by which the required minimum distribution exceeds the actual amount distributed during the calendar year from that plan (the shortfall); and (2) submits a return reflecting that tax (as modified by section 4974(e)), then the

tax imposed under section 4974(a) is 10 percent of the shortfall (in lieu of 25 percent). For this purpose, the correction window ends on the earliest of: (1) the date a notice of deficiency under section 6212 with respect to the tax imposed by section 4974(a) is mailed; (2) the date on which the tax imposed by section 4974(a) is assessed; or (3) the last day of the second taxable year that begins after the end of the taxable year in which the tax under section 4974(a) is imposed.

Good Faith Compliance Standard for Governmental Plans

Section 823 of PPA provides that a governmental plan (as defined in section 414(d) of the Code) is treated as having complied with section 401(a)(9) if the plan complies with a reasonable, good faith interpretation of section 401(a)(9).

2002 Final Regulations and Other Published Guidance

Final regulations relating to required minimum distributions from a qualified plan, an IRA, and a section 403(b) plan have been subject to a series of amendments and additions since they were published in the
Federal Register
on April 17, 2002 (67 FR 18834) (referred to in this preamble as the “2002 final regulations”). Final regulations relating to required minimum distributions from defined benefit plans and annuity contracts were published in the
Federal Register
on June 15, 2004 (69 FR 63288) (referred to in this preamble as the “2004 final regulations”). Final regulations published in the
Federal Register
on September 8, 2009 (74 FR 45993) updated the rules to permit a governmental plan to comply with the required minimum distribution rules using a reasonable, good faith interpretation of section 401(a)(9). Final regulations relating to qualifying longevity annuity contracts were published in the
Federal Register
on July 2, 2014 (79 FR 37633). Final regulations published in the
Federal Register
on November 12, 2020 (85 FR 72472) updated the life expectancy and distribution period tables for distribution calendar years that begin on or after January 1, 2022.

Final regulations relating to section 402(c) and eligible rollover distributions were published in the
Federal Register
on September 22, 1995 (60 FR 49199). Since those regulations were issued, section 402(c) has been amended several times, and guidance related to those amendments has generally been issued in the Internal Revenue Bulletin rather than through the issuance of new regulations. For example, Notice 2007-7, 2007-1 CB 395, provided guidance related to the amendments to section 402(c) made by PPA. However, final regulations related to the extended period of time to roll over a QPLO amount under section 402(c)(3)(C) were published in the
Federal Register
on January 6, 2021 (86 FR 464). See § 1.402(c)-3.

Proposed Regulations and Enactment of SECURE 2.0 Act

Proposed regulations under section 401(a)(9) and related statutory provisions were published in the
Federal Register
on February 24, 2022 (87 FR 10504).
5

Comments were received on the proposed regulations, and a public hearing was held on June 15, 2022. After the close of the comment period, the SECURE 2.0 Act, which affected many of the provisions included in the proposed regulations was enacted.

5
Correction notices were published in the
Federal Register
with respect to the proposed regulations on March 21, 2022 (87 FR 15907), and May 20, 2022 (87 FR 39845).

After consideration of the comments and taking into account the enactment of the SECURE 2.0 Act, the proposed regulations are adopted by this Treasury decision with certain changes described in the section of this preamble entitled “Summary of Comments and Explanation of Revisions.” Some of the rules in these final regulations that reflect provisions of the SECURE 2.0 Act are a clear application of statutory language for which it is unnecessary to solicit comments (see 5 U.S.C. 553(b)). Other rules in these final regulations are the logical outgrowth of rules in the proposed regulations that take into account both the comments received on those proposed rules and the subsequent enactment of the SECURE 2.0 Act. A notice of proposed rulemaking (REG-103529-23) in the Proposed Rules section of this issue of the
Federal Register
sets forth proposed rules that reflect other provisions of the SECURE 2.0 Act relating to section 401(a)(9) of the Code.

Summary of Comments and Explanation of Revisions

These regulations update several existing regulations under sections 401(a)(9), 402(c), 403(b), 457, and 4974 to reflect statutory amendments that have been made since those regulations were last issued and to clarify certain issues that have been raised in public comments and private letter ruling requests. These regulations also replace the question-and-answer format of the existing regulations under sections 401(a)(9), 402(c), 408, and 4974 with a standard format. Rules under the 2002 final regulations and the 2004 final regulations that were proposed to be retained in the updated regulations generally were not discussed in the Explanation of Provisions that accompanied the proposed regulations. Similarly, rules under the proposed regulations that are included in these final regulations without change generally are not discussed in this Summary of Comments and Explanation of Revisions.

I. Section 401(a)(9) Regulations

A. Section 1.401(a)(9)-1—Minimum Distribution Requirement in General

1. Statutory Effective Date of the Limitation on Beneficiary Life Expectancy Distributions

Section 1.401(a)(9)-1 provides general rules that apply for all of the regulations under section 401(a)(9), including rules addressing application of the effective date of section 401(a)(9)(H), which was added to the Code by section 401 of the SECURE Act to limit which beneficiaries may take distributions over their life expectancies. Generally, the amendments made by section 401 of the SECURE Act apply to distributions with respect to an employee who dies on or after January 1, 2020 (with a later effective date for certain collectively bargained plans or governmental plans). In addition, if an employee in a plan died before the section 401(a)(9)(H) effective date for that plan, the employee had only one designated beneficiary, and the employee's designated beneficiary dies on or after that effective date, then the amendments made by section 401 of the SECURE Act apply to any beneficiary of the designated beneficiary. In this situation, the designated beneficiary is treated as an eligible designated beneficiary for purposes of the 10-year payout required by section 401(a)(9)(H)(iii). Accordingly, the death of the designated beneficiary triggers a requirement to complete payment by the end of the calendar year that includes the tenth anniversary of the date of the death of that designated beneficiary. In contrast, if that designated beneficiary died before that effective date, then the amendments made by section 401 of the SECURE Act do not apply with respect to the employee's interest under the plan.

Under the proposed regulations, if an employee in a plan who died before the section 401(a)(9)(H) effective date for that plan had more than one designated beneficiary, whether the amendments made by section 401 of the SECURE Act apply depends on when the oldest of

those beneficiaries dies. Thus, for example, if an employee who died before January 1, 2020, named a see-through trust as the sole beneficiary of the employee's interest in the plan, and the trust has three beneficiaries who are all individuals, then the amendments made by section 401 of the SECURE Act will apply with respect to distributions to the trust upon the death of the oldest trust beneficiary, but only if that beneficiary dies on or after the section 401(a)(9)(H) effective date for that plan. However, if the oldest of the trust beneficiaries died before that effective date, then the amendments made by section 401 of the SECURE Act do not apply with respect to distributions to the trust. Some commenters asked how these effective date rules apply if the beneficiaries were using the separate account alternative (under which section 401(a)(9) is applied separately to the separate accounts for each beneficiary). In that case, the separate application of section 401(a)(9) with respect to the separate account for a beneficiary is used to determine whether section 401(a)(9)(H) applies to that beneficiary.

The proposed regulations reflected the exception for a qualified annuity (that is, an annuity contract for which an employee made an irrevocable election as to the method and the amount of the annuity payments before December 20, 2019) described in section 401(b)(4) of the SECURE Act. One commenter raised questions regarding whether the requirements for an irrevocable election as to the method and amount of annuity payments under the contract meant that the contract loses its exception from the application of section 401(a)(9)(H) merely because the contract permits additional premiums to be paid or permits the annuitant to select when distributions under the contract commence. The final regulations do not change the requirement that, in order for the contract to be excepted from the application of section 401(a)(9)(H), the method and amount of annuity payments under the contract be irrevocably selected before December 20, 2019. For this purpose, the mere ability to pay an additional premium or change the commencement date of benefits under the contract after December 20, 2019, does not cause the contract to lose its exception from the application of section 401(a)(9)(H). However, if an individual paid an additional premium or changed the commencement date of benefits under the contract after that date, then the contract would lose its exception.

Commenters also requested that the final regulations apply the qualified annuity exception to the situation in which the employee had died and, after the employee's death, the beneficiary had made an irrevocable election as to the method and the amount of the annuity payments before December 20, 2019. These final regulations make that change.

2. Applicability Date of Final Regulations Under Section 401(a)(9)

A number of commentators requested that the applicability date of the final regulations be delayed from the proposed applicability date of distribution calendar years beginning on or after January 1, 2022, in order to provide adequate time for plan administrators and IRA providers to familiarize themselves with the new rules and to update administrative systems to implement necessary changes. In response to these comments, the final regulations under section 401(a)(9) apply for distribution calendar years beginning on or after January 1, 2025. For earlier distribution calendar years, taxpayers must apply the 2002 final regulations and 2004 final regulations, but taking into account a reasonable, good faith interpretation of the amendments made by sections 114 and 401 of the SECURE Act.
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For the 2023 and 2024 distribution calendar years, taxpayers must also take into account a reasonable, good faith interpretation of the amendments made by sections 107, 201, 202, 204, and 337 of the SECURE 2.0 Act.

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The preamble to the proposed regulations provided that compliance with the proposed regulations will be treated as a reasonable, good faith interpretation of the amendments made by sections 114 and 401 of the SECURE Act.

B. Section 1.401(a)(9)-2—Distributions Commencing During an Employee's Lifetime

Section 1.401(a)(9)-2 provides rules for determining the required beginning date for distributions and whether distributions are treated as having begun during an employee's lifetime. These rules are based on the rules in the 2002 final regulations, except that the rules have been updated to reflect the amendments to the required beginning date made by section 114 of the SECURE Act and section 107 of the SECURE 2.0 Act.

Specifically, these regulations generally provide that the required beginning date is April 1 of the calendar year following the later of (1) the calendar year in which the employee reaches the applicable age, and (2) the calendar year in which the employee retires from employment with the employer maintaining the plan. These regulations provide that the applicable age is determined based on an employee's date of birth, as follows: (1) for employees born before July 1, 1949, the applicable age is 70
1/2
; (2) for employees born on or after July 1, 1949, but before January 1, 1951, the applicable age is 72; (3) for employees born on or after January 1, 1951, but before January 1, 1959, the applicable age is 73; and (4) for employees born on or after January 1, 1960, the applicable age is 75.
7

The final regulations make conforming changes by replacing references to age 72 in the proposed regulations (when referring to the age for determining the required beginning date) with references to the applicable age. The Summary of Comments and Explanation of Revisions section of this preamble generally does not describe those changes.

7
Section 107 of the SECURE 2.0 Act includes an ambiguity relating to the definition of applicable age for employees born in 1959 (section 401(a)(9)(C)(v) provides that the applicable age for those employees is both 73 and 75). Accordingly, these regulations reserve a paragraph that defines the applicable age for employees born in 1959, and that issue is addressed in a notice of proposed rulemaking (REG-103529-23) in the Proposed Rules section of this issue of the
Federal Register
.

One commenter asked whether a plan could provide a uniform required beginning date of April 1 of the calendar year following the year an employee attains age 70
1/2
that would apply to all employees in the plan regardless of the employee's date of birth. While the final regulations do not provide for such an option, the Department of the Treasury (Treasury Department) and the IRS note that, subject to the requirements of section 411(a)(11), a plan could require benefits to commence by that date. In addition, in the case of a defined benefit plan, § 1.401(a)(9)-6(k) provides that if distributions start prior to the required beginning date in a distribution form that is an annuity under which distributions are made in accordance with the requirements of that section, then the annuity starting date will generally be treated as the required beginning date for purposes of applying the rules of section 401(a)(9).

Another commenter asked whether an employee who is not a 5-percent owner, has benefits under a plan maintained by more than one employer, and retires from employment from any of the employers participating in the plan is treated as having retired for purposes of section 401(a)(9)(C) if that employee is employed by a different employer participating in the same plan. The final regulations add language clarifying that the employee is not treated as having

retired for purposes of section 401(a)(9)(C)(i)(II) in this situation.

C. Section 1.401(a)(9)-3—Death Before Required Beginning Date

Section 1.401(a)(9)-3 provides rules for distributions if an employee dies before the employee's required beginning date. These rules are based on the rules in the 2002 final regulations but are updated to reflect new section 401(a)(9)(H). For example, the option for a designated beneficiary of an employee who participates in a defined contribution plan to elect to receive distributions over the designated beneficiary's life expectancy is limited to an eligible designated beneficiary. These regulations are also updated to reflect the amendment to section 402A(d) made by section 325 of the SECURE 2.0 Act and provide that if an employee's entire interest under a defined contribution plan is in a designated Roth account, then no distributions are required to be made to the employee during the employee's lifetime. Thus, upon the employee's death, that employee is treated as having died before his or her required beginning date.

The proposed regulations described satisfaction of the life expectancy rule for an eligible designated beneficiary of an employee in a defined contribution plan by reference to the rules in § 1.401(a)(9)-5. The final regulations clarify that the requirement to take an annual distribution in accordance with the preceding sentence continues to apply for all subsequent calendar years until the employee's interest is fully distributed. Thus, a required minimum distribution is due for the calendar year of the eligible designated beneficiary's death, and that amount must be distributed during that calendar year to any beneficiary of the deceased eligible designated beneficiary to the extent it has not already been distributed to the eligible designated beneficiary.

Under the proposed regulations, if the employee has a designated beneficiary (who is an eligible designated beneficiary in the case of a defined contribution plan), the plan may: (1) provide that the 5-year rule (in the case of a defined benefit plan) or 10-year rule (in the case of a defined contribution plan) applies; (2) provide that the life expectancy rule applies; or (3) permit the employee or the designated beneficiary to elect between the applicable 5-year or 10-year rule or the life expectancy rule.
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The proposed regulations also provided that, if a plan permits an employee or designated beneficiary to elect between the applicable 5-year or 10-year rule and the life expectancy rule, then the plan must specify the default that would apply when the employee or designated beneficiary has not made an election. Consistent with requests made by commenters, the final regulations provide that the requirement to specify a default applies only if the plan is intended to be operated using a default different than the default that would apply under the regulations if the employee or designated beneficiary did not make an affirmative election. Thus, for example, if the intended operation in the absence of an election is that a surviving spouse who is the sole beneficiary is to wait to begin distributions until the employee would have reached the applicable age, then the plan is not required to provide for a default (because that is the rule that would apply under the regulations if the surviving spouse did not make an affirmative election).

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If a defined contribution plan does not include either the provision that applies the 10-year rule or the provision under which a beneficiary can elect between the 10-year rule and the life expectancy rule, then the plan must provide that the life expectancy rule applies for an eligible designated beneficiary.

In addition, consistent with requests made by commenters, the final regulations clarify that a defined contribution plan may provide that a particular distribution method will apply to certain categories of eligible designated beneficiaries or that an election as to which distribution method applies is available only for certain categories of eligible designated beneficiaries. Thus, for example, a plan may provide that only an employee's surviving spouse may elect between the 10-year rule and life expectancy payments.

D. Section 1.401(a)(9)-4—Determination of the Designated Beneficiary

Section 1.401(a)(9)-4 provides rules addressing the determination of the employee's beneficiary for purposes of section 401(a)(9), including the definition of eligible designated beneficiary in section 401(a)(9)(E)(ii). Section 1.401(a)(9)-4 also provides rules addressing the treatment of trust beneficiaries as designated beneficiaries when a trust is named as the beneficiary of an employee's interest in a plan.

1. Eligible Designated Beneficiaries

Under section 401(a)(9)(E)(ii), an eligible designated beneficiary is a designated beneficiary who, as of the date of the employee's death, is (1) the surviving spouse of the employee, (2) a child of the employee who has not yet reached the age of majority, (3) disabled, (4) chronically ill, or (5) not more than 10 years younger than the employee.

a. Definition of Child

Under section 401(9)(E)(ii)(III), one of the categories of eligible designated beneficiary is a child of the employee who has not yet reached the age of majority. Consistent with requests made by commenters, the final regulations clarify that the definition of child in section 152(f)(1) applies for this purpose (so that the definition includes a stepchild, an adopted child, and an eligible foster child).

b. Definition of Disability

The regulations provide rules for the determination of whether an individual is disabled for purposes of section 401(a)(9). Section 401(a)(9)(E)(ii)(III) applies the definition of disability under section 72(m)(7) for purposes of section 401(a)(9). Section 72(m)(7) provides a standard of disability based on whether an individual is unable to engage in substantial gainful activity. However, that standard may be difficult to apply for individuals under age 18. Accordingly, if, as of the date of the employee's death, a beneficiary is younger than age 18, then the regulations apply a comparable standard that requires the beneficiary to have a medically determinable physical or mental impairment that results in marked and severe functional limitations, and that can be expected to result in death or to be of long-continued and indefinite duration.

These regulations also provide a safe harbor for the determination of whether a beneficiary is disabled. Specifically, if, as of the date of the employee's death, the Commissioner of Social Security has determined that the individual is disabled within the meaning of 42 U.S.C. 1382c(a)(3), then that individual will be deemed to be disabled for purposes of section 401(a)(9) of the Code. The final regulations clarify that this alternative is merely a safe harbor and that a beneficiary who does not have a Social Security determination of disability can apply the general standards described in the preceding paragraph.

Several commenters asked for additional safe harbors for the determination of whether a beneficiary is disabled. For example, one commenter requested that the final regulations include a safe harbor under which a beneficiary is considered to be a disabled individual if a State court has determined that the beneficiary is incapacitated for purposes of State guardianship proceedings. Another

commentor asked for a safe harbor under which an individual is treated as disabled or chronically ill if that individual is an eligible individual with respect to an ABLE account as described in section 529A(e)(1). The regulations do not provide for those safe harbors because the standards required for a State law guardianship proceeding or to be an eligible individual with respect to an ABLE account could be broader than the definition of disability in section 72(m)(7).

c. Documentation Requirements for Disabled or Chronically Ill Status

The regulations provide that, with respect to a beneficiary who is disabled or chronically ill as of the date of the employee's death, documentation of the disability or chronic illness must be provided to the plan administrator no later than October 31 of the calendar year following the calendar year of the employee's death. If the designated beneficiary is chronically ill under any of the definitions in section 7702B(c)(2)(A) as of the date of the employee's death, the documentation must include a certification by a licensed health care practitioner (as defined in section 7702B(c)(4)) that the designated beneficiary is chronically ill. Additionally, in accordance with section 401(a)(9)(E)(ii)(IV), if the beneficiary is chronically ill under the definition in section 7702B(c)(2)(A)(i), then the documentation also must include a certification from a licensed health care practitioner that, as of the date of the certification, the individual is unable to perform (without substantial assistance from another individual) at least 2 activities of daily living and the period of that inability is an indefinite one that is reasonably expected to be lengthy in nature.

For a designated beneficiary who is an eligible designated beneficiary because, at the time of the employee's death, the designated beneficiary is the employee's minor child and that child also is disabled or chronically ill within the meaning of the regulations, the designated beneficiary will continue to be treated as an eligible designated beneficiary after reaching the age of majority (on account of being disabled or chronically ill) only if these documentation requirements are timely met with respect to that designated beneficiary. Similarly, if the employee's designated beneficiary is the employee's surviving spouse and that spouse also is disabled or chronically ill at the time of the employee's death, then the surviving spouse will be treated as disabled or chronically ill for purposes of the applicable multi-beneficiary trust rules only if the documentation requirements are timely met with respect to the surviving spouse.

One commenter requested that the final regulations replace the October 31 deadline for providing documentation reflecting a designated beneficiary's disability or chronic illness and instead provide that the deadline be before a full distribution would be required if the beneficiary was not disabled. The regulations do not make that change because of the need for a medical assessment of the designated beneficiary's disability or chronic illness as of the date of the employee's death. Allowing a 10-year delay before making this medical assessment (or an even further delay in the case of a child of the employee who had not reached the age of majority as of the date of the employee's death) could result in a less reliable assessment that the beneficiary was disabled or chronically ill as of the date of the employee's death than an assessment made within a short period after that date.

Several commenters requested that plan administrators be permitted to rely on self-certifications from a designated beneficiary (or, in the case of a see-through trust, the trustee of that trust) that the beneficiary is disabled or chronically ill within the meaning of § 1.401(a)(9)-4(d). The commenters argued that plan administrators and IRA custodians should not be required to review personal health records or similar documents to determine whether a beneficiary is disabled or chronically ill and that the self-certification process has already been established for other areas of plan administration, including in the case of coronavirus-related distributions pursuant to Notice 2020-50, 2020-28 IRB 35.

The Treasury Department and the IRS generally disagree with the commenters' request that plan administrators should be able to rely on a beneficiary's self-certification of disability or chronic illness. This documentation requirement is different than that of coronavirus-related distributions because there is the potential for a delay of distributions of the employee's account for long periods if the beneficiary meets the disabled or chronically ill standard in the Code. As a result, plans should require documentation from a licensed health care practitioner (rather than rely on a certification by the beneficiary).

While the final regulations do not eliminate the deadline to provide documentation to a plan administrator, an example illustrating this rule has been modified to show that the required documentation need not be overly detailed. Under the example, the licensed health care practitioner merely certifies that, as of a specified date, the designated beneficiary is unable to engage in any substantial gainful activity by reason of a physical impairment that can be expected to be of long-continued and indefinite duration. In addition, the regulations include a transition rule for the documentation deadline in the case of an employee who died in 2020, 2021, 2022, or 2023. In that case, the documentation of the designated beneficiary's disability or chronic illness does not need to be furnished to the plan administrator until October 31, 2025. Finally, as described in section IV of this Summary of Comments and Explanation of Revisions, the final regulations provide that there is no requirement to provide documentation of a designated beneficiary's disability or chronic illness to an IRA custodian.

2. Trust as Beneficiary

The final regulations retain the see-through trust concept in the 2002 final regulations under which certain beneficiaries of a trust are treated as beneficiaries of the employee if the trust meets specified requirements. Specifically, to be a see-through trust, the trust must meet the following requirements: (1) the trust is valid under State law or would be valid but for the fact that there is no corpus; (2) the trust is irrevocable or will, by its terms, become irrevocable upon the death of the employee; (3) the beneficiaries of the trust who are beneficiaries with respect to the trust's interest in the employee's benefit are identifiable; and (4) the specified documentation requirements are satisfied.

a. Determining Which See-Through Trust Beneficiaries Are Treated as Beneficiaries of the Employee

1. See-Through Trust Beneficiaries Taken Into Account

Generally, the regulations provide that a beneficiary of a see-through trust is treated as a beneficiary of the employee if the beneficiary could receive amounts in the trust representing the employee's interest in the plan that are neither contingent upon nor delayed until the death of another trust beneficiary who does not predecease (and who is not treated as having predeceased)
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the employee. A

beneficiary described in the preceding sentence is referred to as a primary beneficiary in this Summary of Comments and Explanation of Revisions. One commenter requested that the final regulations provide a uniform simultaneous death provision for determining whether one beneficiary predeceases another beneficiary. The final regulations do not adopt this request because the disposition of property interests is governed by State law rather than by these regulations.

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For purposes of this rule, a beneficiary is treated as having predeceased the employee if the beneficiary is treated as predeceasing the employee pursuant to a simultaneous death provision under

applicable State law or a qualified disclaimer satisfying section 2518 that applies to the entire interest to which the beneficiary is entitled.

Whether any other see-through trust beneficiary also is treated as a beneficiary of the employee depends upon whether the see-through trust is a conduit trust or an accumulation trust. A conduit trust is defined in the regulations as a see-through trust, the terms of which provide that all plan distributions will, upon receipt by the trustee, be paid directly to, or for the benefit of, primary beneficiaries during their lifetimes. For example, if an employee names a see-through trust as the beneficiary of the employee's interest in a plan and the trust terms provide that all distributions from the plan to the trust during the surviving spouse's life will, upon receipt by the trustee, be paid directly to that surviving spouse, then the trust is a conduit trust and the surviving spouse is treated as a beneficiary of the employee because the surviving spouse could receive amounts in the trust with respect to the deceased employee's interest in the plan that are neither contingent upon nor delayed until the death of another trust beneficiary. In this case, any beneficiary who could receive distributions from the trust with respect to the deceased employee's interest in the plan after the surviving spouse's death is not treated as a beneficiary of the employee.

An accumulation trust is any see-through trust that is not a conduit trust, and under an accumulation trust, there are potentially more beneficiaries. A beneficiary of an accumulation trust is treated as a beneficiary of the employee if that beneficiary could receive amounts accumulated in the trust representing the employee's interest in the plan that were not distributed to other beneficiaries during their lifetimes (unless that beneficiary is disregarded pursuant to the rules described in section II.D.2.
a.2
of this Summary of Comments and Explanation of Revisions). A beneficiary described in the preceding sentence is referred to as a residual beneficiary in this Summary of Comments and Explanation of Revisions.

As an illustration of the rule in the preceding paragraph, assume an employee designates a see-through trust as the sole beneficiary of the employee's interest in the plan. The terms of the see-through trust provide that the trustee is to pay specified amounts from the trust to the employee's surviving spouse, but do not provide that all plan distributions made to the trust will, upon receipt by the trustee, be paid directly to, or for the benefit of, the spouse. Upon the spouse's death, the see-through trust will terminate and the amounts remaining in the trust will be paid to the employee's brother. The surviving spouse is treated as a beneficiary of the employee (because the surviving spouse could receive amounts in the see-through trust representing the deceased employee's interest in the plan that are neither contingent upon nor delayed until the death of another trust beneficiary). Moreover, because not all distributions from the plan to the see-through trust are required, upon receipt by the trustee, to be paid directly to, or for the benefit of, a trust beneficiary, the trust is an accumulation trust. As a result, the employee's brother is treated as a beneficiary of the employee because he is the residual beneficiary of an accumulation trust (unless the employee's brother is disregarded pursuant to the rules described in section II.D.2.
a.2
of this Summary of Comments and Explanation of Revisions).

One commenter requested that the final regulations provide that a see-through trust can still be a conduit trust if it includes certain trust terms. Specifically, the commenter requested that final regulations provide that a see-through trust will not fail to be treated as a conduit trust merely because that trust does not provide that, with respect to the deceased employee's interest in the plan, all distributions will, upon receipt by the trustee, be paid directly to a specified beneficiary provided that the beneficiary has a unilateral withdrawal right with respect to those amounts. The final regulations do not include this change because the Treasury Department and the IRS are concerned that if a trust merely provides a beneficiary with this type of unilateral withdrawal right (rather than providing that any distribution from the plan, upon receipt by the trustee, be paid directly to that beneficiary), then there could be an accumulation within the trust of amounts representing the employee's interest in the plan that could be paid to a different trust beneficiary. In those cases, the trust beneficiaries who could benefit from that accumulation should also be treated as beneficiaries of the employee for purposes of section 401(a)(9) (without regard to the taxability of the distribution).

Commenters requested that the regulations clarify the see-through trust rules in the case of payments that are not made directly to the trust beneficiary but are made indirectly for the benefit of the trust beneficiary (such as payments to a custodial account for the benefit of a minor child). In response to those comments, these regulations provide that a trust beneficiary will be treated as if that beneficiary could receive amounts in the trust representing the employee's interest in the plan regardless of whether those amounts could be paid directly to that beneficiary or indirectly for the benefit of that beneficiary.

2. Disregarded Beneficiaries of See-Through Trusts

The regulations provide for certain beneficiaries of a see-through trust to be disregarded as beneficiaries of the employee for purposes of section 401(a)(9). Specifically, a beneficiary of a see-through trust is not treated as a beneficiary of the employee if that trust beneficiary could receive payments from the trust that represent the employee's interest in the plan only after the death of another trust beneficiary who is a residual beneficiary (and is not also a primary beneficiary) who did not predecease (and is not treated as having predeceased) the employee.

One commenter requested that the disregard described in the preceding paragraph should not be affected by a trustee's ability to make sprinkling distributions to a residual beneficiary (that is, distributions for the health, support, or maintenance of that residual beneficiary) during the lifetime of a primary beneficiary. The Treasury Department and the IRS disagree with this request because of the potential for the primary beneficiary to be entitled to only a nominal amount (so that the residual beneficiary entitled to sprinkling distributions is effectively the primary beneficiary). In that case, the beneficiary who is entitled to amounts representing the employee's interest in the plan after the death of the residual beneficiary has a significant interest in amounts accumulated in the trust representing the employee's interest in the plan and should be treated as a beneficiary of the employee.

The regulations provide another exception under which a see-through trust beneficiary with a residual interest

is disregarded as a beneficiary of the employee. Specifically, the regulations provide that if the see-through trust terms require a full distribution of amounts in the trust representing the employee's interest in the plan to a specified trust beneficiary by the later of: (1) the calendar year following the calendar year of the employee's death; and (2) the end of the calendar year that includes the tenth anniversary of the date the designated beneficiary reaches the age of majority, then any other beneficiary whose sole entitlement to distributions is conditioned on the specified trust beneficiary's death before the full distribution is required is disregarded as a beneficiary of the employee.

One commenter requested that the final regulations also disregard beneficiaries who have a contingent interest in the employee's benefit under the plan if the likelihood of that contingency occurring is remote (for example, the probability of that contingency occurring is less than 5 percent). The final regulations do not adopt this broad disregard because it is too difficult to determine the likelihood of a stated event occurring prior to a specified date in cases other than an individual reaching a particular age or a residual beneficiary predeceasing another designated beneficiary entitled to amounts in the trust.

b. Documentation Requirements for See-Through Trusts

The proposed regulations adopted the see-through trust documentation requirements described in the 2002 final regulations. The documentation requirements in the proposed regulations generally provided that the plan administrator must timely receive either (1) a copy of the actual trust instrument, or (2) a list of all the trust beneficiaries, including contingent beneficiaries, with a description of the conditions on their entitlement sufficient to establish who are the beneficiaries.

Commenters noted that plan administrators and IRA custodians are not experts in the intricacies of various State trust laws and thus, are not qualified to read through complex trust instruments to determine who the beneficiaries are for purposes of section 401(a)(9). The commenters requested that final regulations allow for a certification from the trustee of the trust as to the beneficiaries who are to be treated as beneficiaries of the employee for purposes of section 401(a)(9). The final regulations do not permit a trustee to certify to a plan administrator the list of beneficiaries to be treated as beneficiaries of the employee because plan administrators are better suited to determine how section 401(a)(9) applies with respect to an employee.

As an alternative to allowing a plan administrator to rely on the trustee's certification of the trust beneficiaries who are to be treated as the employee's beneficiaries for purposes of section 401(a)(9), the commenters requested that final regulations allow for a plan administrator to specify that a list of the trust beneficiaries with a description of the conditions on their entitlement must be provided (rather than the actual trust document). The final regulations clarify that a plan administrator may choose which of the two alternatives will be accepted. Thus, the plan administrator may require the trustee to provide a list of trust beneficiaries with a description of the conditions on their entitlement in lieu of the actual trust document. In addition, as described in section IV of this Summary of Comments and Explanation of Revisions, the regulations provide that a trustee of a see-through trust is not required to provide the trust documentation to an IRA custodian, trustee, or issuer.

c. Applicable Multi-Beneficiary Trusts

The proposed regulations provided guidance on a particular type of see-through trust defined in section 401(a)(9)(H)(v) as an applicable multi-beneficiary trust. Specifically, the proposed regulations defined two types of applicable multi-beneficiary trusts. A type I applicable multi-beneficiary trust is a trust with at least one beneficiary who is disabled or chronically ill, the terms of which provide that the trust is to be divided immediately upon the death of the employee into separate trusts for each beneficiary (as described in section 401(a)(9)(H)(iv)(I)). A type II applicable multi-beneficiary trust is an applicable multi-beneficiary trust, the terms of which provide that no individual other than a disabled or chronically ill eligible designated beneficiary has any right to the employee's interest in the plan until the death of all such eligible designated beneficiaries with respect to the trust (as described in section 401(a)(9)(H)(iv)(II)).

The proposed regulations permitted section 401(a)(9) to be applied separately with respect to the separate interests of the beneficiaries reflected in the separate trusts of a type I applicable multi-beneficiary trust. However, the final regulations do not include a definition of a type I applicable multi-beneficiary trust. This is because, as described in section I.H of this Summary of Comments and Explanation of Revisions, the final regulations include a broader rule that permits separate application of section 401(a)(9) with respect to the separate interests of the beneficiaries reflected in a trust if that trust is to be divided immediately upon the death of the employee into separate trusts for each beneficiary, without regard to whether any of the beneficiaries are disabled or chronically ill.

With respect to the definition of a type II applicable multi-beneficiary trust, one commenter requested that the final regulations provide that the trust be permitted to include beneficiaries that are not individuals (such as a charity) that are entitled to distributions after the death of the disabled or chronically ill beneficiary. Section 337(b) of the SECURE 2.0 Act amended section 401(a)(9)(H)(v) of the Code to provide a modified version of that request. Accordingly, these regulations adopt a modified version of the definition of a type II applicable multi-beneficiary trust from the proposed regulations. Under that modification, certain organizations described in section 170(b)(1)(A) to which charitable contributions may be made are treated as designated beneficiaries.
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The final regulations also reflect the change to section 401(a)(9)(H)(iv)(II) of the Code made by section 337 of the SECURE 2.0 Act. Under this change, the restriction on payments from a type II applicable multi-beneficiary trust prior to the death of the disabled or chronically ill individual applies to any other beneficiary (rather than applying to any other individual).

In addition, one commenter requested clarification in the case of a trust that provides for a disabled or chronically ill eligible designated beneficiary's interest in the trust to be terminated if necessary to preserve eligibility for certain public benefits. These regulations continue to require that no trust beneficiary other than the disabled or chronically ill beneficiary may receive payments from the trust prior to the death of that beneficiary in order for the trust to be treated as an applicable multi-beneficiary trust. However, if the trust provides that the other trust beneficiaries cannot receive any amounts from the trust until the death of the disabled or chronically ill beneficiary notwithstanding whether that beneficiary's interest in the trust is terminated, then the termination provision will not cause the trust to fail to be treated as an applicable multi-beneficiary trust. In this case, if the disabled or chronically ill beneficiary's interest is terminated pursuant to that trust provision after September 30 of the calendar year following the calendar year of the employee's death, then the trust is treated as having been modified

to add those other beneficiaries as of the date the termination occurred.

E. Section 1.401(a)(9)-5—Required Minimum Distributions From Defined Contribution Plans

1. In General

Like the proposed regulations, these final regulations retain the general method in the 2002 final regulations by which a required minimum distribution from a defined contribution plan is calculated in any calendar year when an employee dies on or after the required beginning date or when an employee's eligible designated beneficiary is taking annual life expectancy payments after an employee dies before the required beginning date. Specifically, the required minimum distribution for a calendar year is determined by dividing the employee's account balance as of the end of the prior calendar year by the applicable denominator. In addition to the requirement to take annual required minimum distributions, the regulations implement the amendments made by section 401 of the SECURE Act by requiring that a full distribution of the employee's remaining interest be taken in certain circumstances.

2. Purchase of Annuity Contract With Portion of Employee's Individual Account

The 2002 final regulations provided a special bifurcation rule in the case of an employee with an individual account who used a portion of that account to purchase an annuity contract. In that case, those regulations provided that payments from the annuity contract were required to satisfy the rules of § 1.401(a)(9)-6 and payments of the remaining account balance were required to satisfy the rules of § 1.401(a)(9)-5. In addition, because the required minimum distribution for a calendar year is determined based on the account balance as of the end of the previous calendar year, the 2002 final regulations provided that, for the calendar year in which the annuity contract is purchased, payments made under the contract are treated as distributions from the individual account for purposes of determining whether section 401(a)(9) has been satisfied with respect to that account. The proposed regulations generally retained these rules.

In accordance with section 204 of the SECURE 2.0 Act, these regulations provide that a plan may allow the employee to elect to have the amount required to be distributed for a calendar year from an individual account to be calculated as the excess of the total required amount (as defined in section 204(b)(1) of the SECURE 2.0 Act) for that year over the annuity amount (as defined in section 204(b)(2) of the SECURE 2.0 Act) for that year. Accordingly, these final regulations provide an alternative to the bifurcation rule described in the preceding paragraph. Under this rule, in lieu of satisfying section 401(a)(9) separately with respect to the annuity contract and the remaining account balance, a plan may permit an employee to elect to satisfy section 401(a)(9) for the annuity contract and that account balance in the aggregate by adding the fair market value of the contract to the remaining account balance and treating payments under the annuity contract as distributions from the individual account. These regulations reserve a paragraph for rules of operation with respect to this alternative, including guidance related to the determination of the fair market value of the annuity contract. These rules are included in a notice of proposed rulemaking (REG-103529-23) in the Proposed Rules section of this issue of the
Federal Register
.

3. Distributions After the Employee's Death

a. Requirement To Satisfy Both Section 401(a)(9)(B)(i) and (ii) in the Case of an Employee Who Dies On or After the Required Beginning Date

Section 401(a)(9)(B)(i) provides rules that apply if an employee dies after benefits have commenced. While the 5-year rule under section 401(a)(9)(B)(ii) generally applies if an employee dies before the employee's required beginning date, section 401(a)(9)(H)(i) provides that section 401(a)(9)(B)(ii) applies in certain cases by substituting 10 years for 5 years and applies whether or not the employee dies before or after the employee's required beginning date. Accordingly, if an employee dies after the required beginning date, distributions to the employee's beneficiary for calendar years after the calendar year in which the employee died must satisfy section 401(a)(9)(B)(i) as well as section 401(a)(9)(B)(ii). In order to satisfy both of these requirements, the regulations provide for the same calculation of the annual required minimum distribution that was adopted in the 2002 final regulations but with an additional requirement that a full distribution of the employee's entire interest in the plan be made upon the occurrence of certain designated events (discussed in section I.E.3.
c
of this Summary of Comments and Explanation of Revisions).

Several commenters requested that the final regulations eliminate the requirement for continued annual distributions if an employee dies on or after the employee's required beginning date. The commenters set forth an interpretation of section 401(a)(9)(H) under which, if an employee dies on or after the employee's required beginning date, the 10-year rule described in section 401(a)(9)(B)(ii) (as modified by section 401(a)(9)(H)(i)) applies in lieu of the “at least as rapidly” rule described in section 401(a)(9)(B)(i). Commenters also asserted that requiring continued annual distributions adds complexity to the regulations (in that the beneficiary would have to know whether the employee died before or after the employee's required beginning date to apply this rule).

The final regulations do not eliminate the requirement for continued annual distributions if an employee dies on or after the employee's required beginning date. The Treasury Department and the IRS do not think that the commenters' interpretation is consistent with a plain reading of the statute. Instead, the Treasury Department and the IRS have determined that section 401(a)(9)(B)(i) and (ii) both apply if an employee dies after the employee's required beginning date (unless the designated beneficiary is an eligible designated beneficiary taking life expectancy payments under section 401(a)(9)(B)(iii)). Read together, those provisions generally require annual distributions to continue while also requiring full distribution of the employee's interest in the plan by the end of the calendar year that includes the tenth anniversary of the date of the employee's death.

The Treasury Department and the IRS have also concluded that the overarching policy of section 401(a)(9) and the amendments made by section 401 of the SECURE Act support the interpretation in these regulations. Since it was first added to the Code, section 401(a)(9) has always included the concept of a required beginning date, under which, once required minimum distributions began to either an employee or designated beneficiary, they were required to continue until the employee's entire interest under the plan was fully distributed, and these regulations retain this requirement. There is little indication in section 401 of the SECURE Act to suggest that Congress intended to allow distributions of an employee's account to temporarily cease for up to 9 years once annual required minimum distributions have begun. Moreover, the requirement to continue annual distributions does not increase complexity (in that this

requirement merely retains the rules that were in place before the addition of section 401(a)(9)(H), but subject to the full distribution requirement described in section I.E.3.
c
of this Summary of Comments and Explanation of Revisions).

The proposed regulations provided a similar requirement to continue annual distributions for 10 years if an eligible designated beneficiary who was taking life expectancy payments dies or if an eligible designated beneficiary who is a minor child of the employee and who was taking life expectancy payments reaches the age of majority. Commenters raised similar concerns regarding this requirement. For the reasons described in the preceding paragraph, these regulations retain this requirement for continued annual distributions for up to 10 years after: (1) the death of an eligible designated beneficiary who was taking life expectancy payments; or (2) the attainment of the age of majority (in the case of an eligible designated beneficiary who was a minor child of the employee taking life expectancy payments).

While the final regulations do not eliminate the annual distribution requirement in cases in which annual life expectancy payments have begun, the Treasury Department and the IRS issued Notice 2022-53, 2022-45 IRB 437, Notice 2023-54, 2023-31 IRB 382, and Notice 2024-35, 2024-19 IRB 1051, in response to comments requesting transition relief for this requirement. Under those notices, if a distribution would have been required to be made to certain beneficiaries under these regulations had they applied before January 1, 2025, then: (1) a plan will not fail to be qualified for failing to make that distribution in 2021, 2022, 2023, or 2024; and (2) the taxpayer who failed to take the distribution will not be assessed an excise tax for failing to do so.
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This relief applies with respect to a beneficiary who is a designated beneficiary of an employee who died in 2020, 2021, 2022, or 2023, and after the employee's required beginning date, provided that the beneficiary was not an eligible designated beneficiary who used the lifetime or life expectancy payments exception under section 401(a)(9)(B)(iii). Those notices also provided comparable relief for the case in which an eligible designated beneficiary who was taking annual life expectancy payments died in 2020, 2021, 2022, or 2023, and that beneficiary's successor beneficiary failed to take a distribution in 2021, 2022, 2023, or 2024.

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This relief does not require taxpayers to make up missed required minimum distributions nor does it permit taxpayers to extend the 10-year deadline by which a full distribution is required to be made. For example, if an employee died in 2020, then in 2025, there are six years remaining in the 10-year period without regard to whether the designated beneficiary took distributions in 2021, 2022, 2023, or 2024. In 2030, the designated beneficiary must take a distribution of the remaining account balance.

b. Determination of Applicable Denominator

If an employee died on or after the required beginning date (or the employee died before the required beginning date and the employee's eligible designated beneficiary is taking life expectancy distributions in accordance with section 401(a)(9)(B)(iii) and these regulations), then for calendar years after the calendar year in which the employee died, the applicable denominator generally is the remaining life expectancy of the designated beneficiary.
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The beneficiary's remaining life expectancy generally is calculated using the age of the beneficiary in the year following the calendar year of the employee's death, reduced by one for each subsequent calendar year.

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In the case of an employee who died on or after the employee's required beginning date, the designated beneficiary may use the employee's remaining life expectancy if it is longer than the beneficiary's remaining life expectancy.

However, as an exception to these general rules, if the employee's spouse is the employee's sole beneficiary, then the applicable denominator during the spouse's lifetime is the spouse's life expectancy (which reflects an annual recalculation in accordance with section 401(a)(9)(D)). The final regulations clarify that in this case, for calendar years after the calendar year in which the spouse died, in determining the required minimum distribution to the spouse's beneficiary, the applicable denominator is the spouse's life expectancy calculated using the spouse's age as of the spouse's birthday in the calendar year in which the spouse died, reduced by one for each subsequent calendar year.

The final regulations reflect the amendments made to section 401(a)(9)(B)(iv) by section 327 of the SECURE 2.0 Act under which a surviving spouse who is the sole beneficiary of the employee may elect to be treated as the employee for certain purposes. However, the rules relating to this election are reserved in these final regulations and included in a notice of proposed rulemaking (REG-103529-23) in the Proposed Rules section of this issue of the
Federal Register
.

c. Full Distribution Required in Certain Circumstances

Under the proposed regulations, if an employee's interest is in a defined contribution plan to which section 401(a)(9)(H) applies, in order to satisfy the 5-year rule of section 401(a)(9)(B)(ii) (or, if applicable, the exception to that rule in section 401(a)(9)(B)(iii), taking into account section 401(a)(9)(E)(iii) and (H)), then the employee's entire interest in the plan must be distributed by the earliest of the following dates:

(1) The end of the tenth calendar year following the calendar year in which the employee died if the employee's designated beneficiary is not an eligible designated beneficiary;

(2) The end of the tenth calendar year following the calendar year in which the designated beneficiary died if the employee's designated beneficiary was an eligible designated beneficiary;

(3) The end of the tenth calendar year following the calendar year in which the beneficiary reaches the age of majority if the employee's designated beneficiary is the child of the employee who had not yet reached the age of majority as of the date of the employee's death; or

(4) The end of the calendar year in which the applicable denominator would have been less than or equal to one if it were determined using the beneficiary's remaining life expectancy, if the employee's designated beneficiary is an eligible designated beneficiary, and if the applicable denominator is determined using the employee's remaining life expectancy.

The final regulations generally retain these full distribution requirements (with minor language changes clarifying those requirements). However, consistent with requests made by commenters, the regulations remove the requirement for a full distribution by the end of the calendar year in which the applicable denominator would have been less than or equal to one if it were determined using the beneficiary's remaining life expectancy (which would have applied in the case of a designated beneficiary who was older than the employee). Accordingly, in the case of an eligible designated beneficiary who was born before the employee, if that beneficiary is taking distributions over the employee's remaining life expectancy, then a full distribution is not required until the calendar year in which the applicable denominator is less than or equal to one.

d. Multiple Designated Beneficiaries

The proposed regulations provided that if the employee has more than one designated beneficiary then the

applicable denominator is determined using the life expectancy of the oldest designated beneficiary. Under the proposed regulations, whether a full distribution is required also generally is determined using the oldest of the designated beneficiaries.

The proposed regulations provided certain exceptions to these general rules for multiple designated beneficiaries. Under one exception, if the employee's beneficiary is an applicable multi-beneficiary trust, then only the disabled and chronically ill beneficiaries of the trust are taken into account in determining the oldest designated beneficiary. Under a second exception, if any of the employee's designated beneficiaries was a child of the employee who had not yet reached the age of majority as of the date of the employee's death, then, in applying the requirement to make a full distribution by the tenth year following the death of the oldest eligible designated beneficiary, only the employee's children who are designated beneficiaries and who are under the age of majority as of the employee's date of death were taken into account. Thus, in a situation involving one or more designated beneficiaries who are children of the employee under the age of majority as of the date of the employee's death and one or more older designated beneficiaries, the death of an older designated beneficiary would not result in a requirement to pay a full distribution before the oldest of those children attains the age of majority plus 10 years.
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This rule works in conjunction with the rule in § 1.401(a)(9)-4(e)(2)(ii), which provides that if any of the employee's designated beneficiaries is an eligible designated beneficiary because the beneficiary is the child of the employee who had not reached the age of majority at the time of the employee's death, then the employee is treated as having an eligible designated beneficiary even if the employee has other designated beneficiaries who are not eligible designated beneficiaries. Thus, if the employee has both an eligible designated beneficiary who is a minor child of the employee and an older designated beneficiary, annual distributions may continue until the minor child reaches the age of majority plus 10 years.

One commenter raised the concern that, if two of the employee's children are eligible designated beneficiaries, the rules in the proposed regulations would result in a requirement to pay the balance of the employee's account upon the attainment of the age of majority plus 10 years by the older of those children. To address this situation, the final regulations provide that, in the case described in this paragraph, a full distribution is not required until ten years after the youngest of the employee's children who are designated beneficiaries attains the age of majority (or, if earlier, ten years after the last of those minor children dies).

4. Treatment of Designated Roth Accounts

These final regulations provide that, in accordance with section 325 of the SECURE 2.0 Act, when determining the account balance subject to section 401(a)(9) of the Code for distribution calendar years up to and including the calendar year including the employee's date of death, amounts held by the employee in a designated Roth account (as described in section 402A(b)(2)) are not taken into account. These regulations reserve a paragraph for rules regarding how distributions from a designated Roth account are treated for purposes of section 401(a)(9) that are included in a notice of proposed rulemaking (REG-103529-23) in the Proposed Rules section of this issue of the
Federal Register
.

5. Disregard of Certain Distributions

The proposed regulations updated the list of amounts of distributions and deemed distributions that are not taken into account in determining whether the required minimum distribution has been made for a calendar year. Under the proposed regulations, that list was implemented by a cross-reference to a list of amounts in proposed § 1.402(c)-2(c)(3) (relating to amounts that are not treated as eligible rollover distributions). The effect of the new cross-reference was to add the following items to the list of amounts that are disregarded for purposes of determining whether the required minimum distribution has been made from a defined contribution plan: prohibited allocations that are treated as deemed distributions pursuant to section 409(p); distributions of premiums for health and accident insurance under § 1.402(a)-1(e)(1)(i); amounts treated as distributed with respect to collectibles pursuant to section 408(m); and distributions that are permissible withdrawals from an eligible automatic contribution arrangement within the meaning of section 414(w).

These exclusions are reflected in the final regulations with minor language changes. However, consistent with requests made by commenters, the final regulations clarify that the disregard for a distribution of premiums for health and accident insurance does not include a distribution described in section 402(l) (that is, certain distributions with respect to eligible retired public safety officers from governmental plans that are used to pay qualified health insurance premiums).

The final regulations reserve a paragraph for the treatment of a corrective distribution under section 4974(e) (that is, a distribution of a prior year's missed required minimum distribution within the statutory correction window that results in a reduction in the excise tax rate for the missed required minimum distribution) or § 54.4974-1(g)(2) (relating to the automatic waiver of the excise tax for a missed required minimum distribution for the year of an individual's death). These rules are included in a notice of proposed rulemaking (REG-103529-23) in the Proposed Rules section of this issue of the
Federal Register
.

F. Section 1.401(a)(9)-6—Required Minimum Distributions From Defined Benefit Plans and Annuity Contracts

Section 1.401(a)(9)-6 provides rules for required minimum distributions from defined benefit plans and from annuity contracts (including annuity contracts that are used to pay benefits under a defined contribution plan). These rules are based on the 2004 final regulations and are updated to reflect the amendments to section 401(a)(9) of the Code made by various provisions of the SECURE 2.0 Act.

1. Rules Applicable to Defined Benefit Plans

The proposed regulations, like the 2004 final regulations, reflected the exceptions from the requirements of section 401(a)(9)(C)(ii) and (iii) provided under section 401(a)(9)(C)(iv) for governmental plans and church plans. Section 401(a)(9)(C)(iv) specifies that for purposes of these exceptions, a church plan is a plan maintained by a church for church employees, and the term
church
means any church as defined in section 3121(w)(3)(A) or any qualified church-controlled organization as defined in section 3121(w)(3)(B). The proposed regulations provided that, for this purpose, the determination of whether an employee is a church employee is made without regard to section 414(e)(3)(B).

One commenter requested that the final regulations provide that the rules under section 414(e)(3)(B) that treat certain individuals as employees of a church apply generally for the purposes of determining whether a plan is maintained for church employees under section 401(a)(9)(C)(iv). The Treasury Department and the IRS determined that such a rule would yield an inappropriate result in the case of a plan for employees of a tax-exempt organization that is associated with a church unless the organization is a qualified church-controlled

organization. However, it would be appropriate to treat a plan for self-employed individuals who are licensed ministers of a church as a plan maintained by a church for employees of a church. Accordingly, these regulations provide that the determination of whether an individual is an employee of a church or qualified church-controlled organization is made in accordance with the rules of section 414(e)(3)(B) other than section 414(e)(3)(B)(ii). Thus, a licensed minister who is self-employed but is treated as an employee of a church under section 414(e)(3)(B)(i) is considered an employee of a church for purposes of section 401(a)(9)(C)(iv).

The commenter also requested that the exception apply to a multiple employer plan covering employees of a church or a qualified church-controlled organization that also covers other employees. These regulations do not adopt that rule. Instead, they provide that a plan is excepted from the actuarial increase requirement only if at least 85 percent of the individuals covered by the plan are employees of a church or a qualified church-controlled organization. Thus, if the employees in the plan who are not employees of a church or a qualified church-controlled organization constitute more than 15 percent of the covered employees, then the plan is not treated as a church plan that is exempted from the requirement under section 401(a)(9)(C)(iii) to provide an actuarial increase. However, these regulations provide that this actuarial increase requirement does not apply to benefits accrued by an individual that are attributable to service the individual performs as an employee of a church or a qualified church-controlled organization (including service performed as an employee described in section 414(e)(3)(B)(i)).

Another commenter asked whether the requirement to apply an actuarial increase applies to benefits that are not vested. These regulations provide that the actuarial increase applies to benefits that are accrued but treat benefits that are not vested as accruing when they become vested. Accordingly, benefits that are not vested are not required to be actuarially increased until they become vested.

2. Applicability of Section 401(a)(9)(H) to Annuity Contracts

One commentor noted that the language in § 1.401(a)(9)-5(a)(5) of the proposed regulations requiring that an annuity contract purchased under a defined contribution plan satisfy the requirements of § 1.401(a)(9)-5(e) (implementing the requirements of section 401(a)(9)(E)(iii), (H)(ii) and (iii) that the employee's entire interest be distributed by the end of a specified calendar year) was not clear (in that the rule in § 1.401(a)(9)-5(e) of the proposed regulations referred to the situation in which an employee's benefit is in the form of an individual account). The final regulations clarify that, if an annuity contract is purchased under a defined contribution plan, or the annuity contract is otherwise subject to section 401(a)(9)(H), then payments under that annuity contract are not permitted to extend past the calendar year described in § 1.401(a)(9)-5(e).
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One commenter asked for clarification of whether section 401(a)(9)(H) applies in the case of an annuity provided under a defined benefit plan that is attributable to a direct rollover from a defined contribution plan (as described in Rev. Rul. 2012-4, 2012-8 IRB 386). In that case, because the annuity is provided under a defined benefit plan, it is not subject to section 401(a)(9)(H).

Several commenters observed that, as of the annuity starting date, a participant may have elected to receive a joint and survivor annuity benefit under an annuity contract with the spouse as survivor annuitant, and that the participant and spouse may divorce after the annuity starting date. Commenters asserted that, in such a case, there should be no change in the terms of the annuity contract on account of the divorce (as would have been required under the proposed regulations if the former spouse were no longer considered to be a spouse and were not an alternate payee under a qualified domestic relations order (QDRO) issued in accordance with section 414(p) specifying that the former spouse is to be treated as the surviving spouse for purposes of the annuity contract). Consistent with these comments, the final regulations provide that, for a designated beneficiary who is a contingent annuitant under an annuity contract, the determination of whether that beneficiary is an eligible designated beneficiary is made as of the annuity starting date. Thus, if the employee elects a joint and survivor annuity with the employee's spouse as the contingent annuitant, and they divorce after the annuity starting date, then the former spouse who is a designated beneficiary and the contingent annuitant under the contract is treated as an eligible designated beneficiary without regard to whether there is a QDRO. This approach is consistent with the requirements of rules of sections 401(a)(11) and 417, and § 1.401(a)-20, Q&A-25(b)(3), under which the spouse as of the annuity starting date continues to be entitled to a qualified joint and survivor annuity elected under the plan if the participant and the spouse divorce after the annuity starting date.

3. Increasing Payments

Similar to the 2004 final regulations, the proposed regulations provided that all payments under a defined benefit plan or annuity contract must be nonincreasing, subject to a number of exceptions. The proposed regulations retained the exceptions in the 2004 final regulations and added further exceptions under which annuity payments under a defined benefit plan or annuity contract may increase. Under the proposed regulations, the permitted increases in annuity payments were different for defined benefit plans and annuity contracts issued by insurance carriers. In the case of an annuity contract, certain of the exceptions to the nonincreasing rule in the proposed regulations applied only if the total future expected payments under the contract exceed the total value being annuitized (that is, the value of the employee's entire interest being annuitized).

One commenter requested that each of the annuity payment increases permitted under a defined benefit plan (such as a fixed percentage increase in annuity payments that is less than 5 percent) be permitted for annuity contracts without regard to the condition that the total future expected payments exceed the total value being annuitized. Consistent with this comment, and in accordance with section 401(a)(9)(J)(i) (as added to the Code by section 201 of the SECURE 2.0 Act), these regulations provide that the permitted increases in annuity payments under a defined benefit plan generally are also available under an annuity contract and eliminate the condition on increases under an annuity contract that the total future expected payments under the contract exceed the total value being annuitized. Thus, the permitted increases in annuity payments under an annuity contract are expanded under the regulations to include increases by a constant percentage, applied not less frequently than annually, at a rate that is less than 5 percent per year. However, consistent with the simplification of the permitted annuity increases under section 401(a)(9)(J), an increase of 5 percent or more per year is not permitted for an annuity contract under the final regulations, even if the annuity payments could have met the condition for that increase under the 2004 regulations.

These regulations also include modifications to the permitted increases for annuity contracts to reflect the

addition of section 401(a)(9)(J)(ii) through (iv) to the Code. Thus, the following increases in annuity payments are permitted: (1) an increase as a result of the shortening of the payment period with respect to the annuity or a full or partial commutation of the future annuity payments, provided that the amount of the payment pursuant to the commutation is determined using reasonable actuarial methods and assumptions, as determined in good faith by the issuer of the contract;
15

(2) a payment of an amount that is in the nature of a dividend, provided that the issuer of the contract uses reasonable actuarial methods and assumptions, as determined in good faith, when calculating the initial annuity payments, the issuer's experience with respect to those factors, and the amount of the dividend or similar payment; and (3) a final payment upon death that does not exceed the amount by which the total consideration paid for the contract exceeds the aggregate amount of prior distributions under the contract.

15
This commutation may be needed to comply with the requirement that, if the employee's designated beneficiary is not an eligible designated beneficiary, then payments under the annuity contract may not extend beyond the calendar year that includes the tenth anniversary of the date of the employee's death.

In addition, these regulations provide rules that apply if the annuity contract purchased under a defined benefit plan is merely providing the same benefits that would have been payable under the defined benefit plan if an annuity contract had not been purchased.
16

In that case, the annuity contract is permitted to have the same increases in annuity payments as under the qualified defined benefit rules. This could occur, for example, if an annuity contract is purchased under a terminating defined benefit plan.

16
The final regulations also make a change to § 1.401(a)(9)-6(d) to broaden the applicability of the annuity rules by removing the requirement that an annuity be purchased with the employee's benefit under the plan.

One commenter requested additional guidance as to whether section 401(a)(9) prohibits a plan from offering a period of time during which a participant or beneficiary may elect to receive a lump sum payment instead of future annuity payments. These regulations do not address this issue. As described in Notice 2019-18, 2019-13 IRB 915, the Treasury Department and the IRS will continue to study the issue of retiree lump sum windows. This study will take into account the enactment of section 342 of the SECURE 2.0 Act.

4. Qualifying Longevity Annuity Contracts

In 2014, the Treasury Department and the IRS amended the regulations under section 401(a)(9) to provide special rules that apply if a deferred annuity that commences annuity payments at an advanced age is purchased with a portion of the employee's interest under a defined contribution plan. See 79 FR 37633. Under those rules, if the annuity contract satisfies certain requirements, then the contract is a QLAC and the value of that QLAC is excluded from the account balance under the plan. Those requirements include that: (1) distributions commence not later than age 85; (2) the premiums paid with respect to all contracts intended to be QLACs not exceed an inflation-adjusted $125,000 (dollar limitation) or 25 percent of the employee's account balance (percentage limitation); and (3) the contract not make available any commutation benefit, cash surrender value, or other similar feature.

The proposed regulations retained these premium limitations for QLAC status. However, in accordance with section 202(a)(1) and (2) of the SECURE 2.0 Act, the final regulations eliminate the percentage limitation and increase the initial amount of the inflation-adjusted dollar limitation from $125,000 to $200,000. These higher limits apply to an annuity contract that was purchased before December 29, 2022, and that satisfied the requirements to be a QLAC as of that date. Thus, the contract need not be exchanged for another annuity contract on or after that date in order for the employee to take advantage of the higher premium limits under section 202(a)(1) and (2) of the SECURE 2.0 Act.

The proposed regulations included an exception to the requirement that the contract not include any commutation benefit, cash surrender value, or similar feature by permitting such a feature before the required beginning date. This change was proposed so that if a plan's investment options include a series of target date funds to which the relief under Notice 2014-66, 2014-46 IRB 820, applies,
17

those target date funds could include QLACs among their assets. Commenters observed that some State laws prohibit the purchase of an annuity contract that does not provide for a right to rescind the contract within a specified short period of time and requested that such a rescission right be accommodated for a QLAC. Consistent with this comment and as instructed by section 202(a)(4) of the SECURE 2.0 Act, the final regulations add an exception under which the contract may provide a right to rescind the contract within a period not exceeding 90 days after purchase.

17
Notice 2014-66 provides relief under section 401(a)(4) of the Code to enable plans to provide lifetime income by offering, as investment options, a series of target date funds that include deferred annuities among their assets, even if some of the target date funds within the series are available only to older participants.

One commenter asked how an issuer of a QLAC should report that a taxpayer utilized the option to commute a contract before the required beginning date. The final regulations do not modify the reporting required under § 1.6047-2 and do not provide for a reversal of any premiums previously paid for a contract that is commuted prior to the required beginning date or rescinded within a short period after purchase. This is because the purpose of these exceptions is to accommodate the possibility that the contract will permit the commutation or recission and not to accommodate an employee who chooses to commute or rescind the contract and later decides to purchase another QLAC.

The proposed regulations provided that, for purposes of applying the limitation on premiums used to purchase a QLAC, if another insurance contract is exchanged for a QLAC then the fair market value of the exchanged contract will be treated as a premium paid for the QLAC. One commenter suggested that if an insurance contract is surrendered for its cash surrender value, the surrender extinguishes all benefits and other characteristics of the contract, and the cash is used to purchase a QLAC, then only the cash from the surrendered contract should be treated as a premium paid for the QLAC. These regulations include that modification to the rule.

One commenter asked for continued treatment of a former spouse as a spouse if the participant and spouse divorce after the QLAC is purchased but before the annuity starting date in the absence of a QDRO providing for this treatment. Consistent with this comment and as instructed in section 202(a)(3) of the SECURE 2.0 Act, these final regulations provide that the payment of survivor benefits to the employee's former spouse under an annuity contract will not cause the contract to fail to satisfy the requirements to be treated as a QLAC merely because the divorce between the employee and that former spouse occurred after the contract is purchased, provided that a QDRO satisfying certain requirements has been issued in connection with the divorce.

Specifically, the QDRO must: (1) provide that the former spouse is entitled to the survivor benefits under the contract; (2) provide that the former

spouse is treated as a surviving spouse for purposes of the contract; (3) not modify the treatment of the former spouse as the beneficiary under the contract who is entitled to the survivor benefits; or (4) not modify the treatment of the former spouse as the measuring life for the survivor benefits under the contract.
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The Treasury Department and the IRS remind taxpayers that in the case of a QDRO that does not provide that either the former spouse is entitled to the survivor benefits under the contract or that the former spouse is treated as a surviving spouse for purposes of the contract, there is a risk that the spousal rights rules of sections 401(a)(11) and 417 will be violated if the employee remarries.

Section 202(a)(3) of the SECURE 2.0 Act provides for a comparable rule in the case of a plan not subject to the QDRO rules of section 414(p) of the Code or section 206(d) of the Employee Retirement Income Security Act of 1974, Public Law 93-406, 88 Stat. 829, as amended (ERISA). These regulations reserve a paragraph for this comparable rule, which is included in a notice of proposed rulemaking (REG-103529-23) in the Proposed Rules section of this issue of the
Federal Register
.

G. Section 1.401(a)(9)-7—Rollovers and Transfers

As was the case for the proposed regulations, § 1.401(a)(9)-7 retains the rollover and transfer rules that are in the 2002 final regulations.

H. Section 1.401(a)(9)-8—Special Rules

Section 1.401(a)(9)-8 provides special rules applicable to satisfying the minimum distribution requirement.

The proposed regulations retained the rules from the 2002 final regulations under which section 401(a)(9) may be applied separately with respect to the separate interests of each of the employee's beneficiaries under a plan. The final regulations clarify that the separate application of section 401(a)(9) only applies for calendar years after the death of the employee (and thus, does not apply for the calendar year of the employee's death) and adds expenses to the list of items that must be allocated in a reasonable and consistent manner among the separate accounts.

The final regulations also restore flexibility from § 1.401(a)(9)-5 in the 2002 final regulations relating to the required minimum distribution for the calendar year of the employee's death by providing that a required minimum distribution must be paid to “any beneficiary” in the year of death rather than to “the beneficiary.” Thus, for example, if an employee who is required to take a distribution in a calendar year dies before taking that distribution and has named more than one designated beneficiary, then any of those beneficiaries can satisfy the employee's requirement to take a distribution in that calendar year (as opposed to each of the beneficiaries being required to take a proportional share of the unpaid amount).

The proposed regulations generally retained the separate account rules applicable to beneficiaries after the death of the employee that were adopted in the 2002 final regulations, including the rule that prohibits separate application of section 401(a)(9) to separate interests in a trust. However, in light of the enactment of special rules that apply to an applicable multi-beneficiary trust described in section 401(a)(9)(H)(iv)(I) (a trust with at least one disabled or chronically ill beneficiary that provides that it is to be immediately divided upon the death of the employee into separate trusts for each beneficiary), the proposed regulations provided an exception to that prohibition that would permit separate application of section 401(a)(9) to those separate trusts.

Consistent with requests made by commenters, the final regulations expand the exception in the proposed regulations to permit separate application of section 401(a)(9) to the separate interests of beneficiaries of a see-through trust if certain requirements are met. This exception applies to the separate interests of beneficiaries of a see-through trust if the terms of that trust provide that it is to be divided immediately upon the death of the employee into separate shares for one or more trust beneficiaries (without regard to whether any of the beneficiaries are disabled or chronically ill).

For this purpose, the final regulations provide that a trust is divided immediately upon the death of the employee into separate shares for one or more trust beneficiaries only if the trust is terminated, the separate interests of the trust beneficiaries are held in separate trusts, and there is no discretion as to the extent to which the separate trusts will be entitled to receive post-death distributions attributable to the employee's interest in the plan. In addition, the final regulations clarify that a trust does not fail to be divided immediately upon the death of the employee merely because there are administrative delays between the date of the employee's death and the date on which the trust actually is divided and terminated provided that any amounts received by the trust during this period are allocated as if the trust had been divided on the date of the employee's death.

II. Section 402(c) Regulations

The proposed regulations provided updates to existing rules of § 1.402(c)-2 that reflect certain statutory amendments made to section 402(c) since the regulations were issued in 1995. Those amendments are described in the Background section of this preamble under the heading Section 402(c)—Rollovers.

A. Special Rule for Certain Distributions to Surviving Spouses

The proposed regulations provided a new rule to limit the ability of a surviving spouse to use the 5-year rule or the 10-year rule to defer distributions beyond the calendar year that annual distributions would have been required to commence and then, after that calendar year, commence annual distributions. This rule, which applied in limited circumstances, would have been used to determine, with respect to a distribution to the employee's surviving spouse to whom the 5-year rule or 10-year rule applies, the portion of that distribution that is treated as a required minimum distribution under section 401(

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2024-14542. Public record. Not legal advice.