Relief in 2023 from RMD Rules

In Notice 2023-54, the IRS granted relief to individuals and retirement plans from taking required minimum distributions in 2023. This applies to both individual accounts and inherited IRAs where distributions were mistakenly taken although no distribution was required. This relief appears to be the result of the IRS’s delay in issuing final regulations under the SECURE Act 2.0.

Under the SECURE Act 2.0, the age when RMDs must begin was raised from 72 to either 73 or 75 depending upon the participant’s date of birth. Specifically, Section 107 of the SECURE 2.0 strikes “age 72” and replaces it with the phrase “the applicable age.” Section 107(c) of the Act then defines applicable age as:

‘‘(I) 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.
‘‘(II) In the case of an individual who attains
age 74 after December 31, 2032, the applicable
age is 75.’’

The effective date of this change applies to distributions to be made after December 31, 2022. The Senate Finance Committee summary of the SECURE Act 2.0, describes the changes as follows:

Section 107, Increase in age for required beginning date for mandatory distributions. Under current law, participants are generally required to begin taking distributions from their retirement plans at age 72. The policy behind this rule is to ensure that individuals spend their retirement savings during their lifetime and not use their retirement plans for estate planning purposes to transfer wealth to beneficiaries. The SECURE Act of 2019 increased the required minimum distribution age to 72. Section 107 further increases the required minimum distribution age further to 73 starting on January 1, 2023 – and increases the age further to 75 starting on January 1, 2033.

Also, many advisors and tax payers have questioned whether distributions must be taken annually for 10 years from an inherited IRA or whether the entire amount may be taken during the 10th year. IRS proposed regulations were supposed to answer these questions, but because they have been late in coming, “financial institutions were not able to stop the presses on RMD notices that were sent out to IRA owners [turning 72 in 2023] notifying them that they have an RMD due for 2023 when they in fact did not.”