Fidelity Notice 22-297:
The IRS recently released Notice 2022-53 that provides guidance relative to certain RMD rules enacted by the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. The notice also announced that the Department of the Treasury and the IRS will issue final RMD regulations effective no earlier than the 2023 distribution calendar year which, to date, have not been released in final form.
Beneficiary 10-Year Rule
The SECURE Act generally imposes a 10-year deadline for making distributions to beneficiaries of defined contribution retirement plan (DCRP) accounts and IRAs who are not “eligible” designated beneficiaries (EDBs). This 10-year rule is effective for beneficiaries of individuals who died after December 31, 2019. There has been considerable confusion about the scope of the 10-year rule, namely, whether or not distributions are required each year throughout the 10-year period. Pursuant to Notice 2022-53, the proposed regulations provide that distributions indeed must be made each year during the 10-year period (1) for any designated beneficiary if the original account owner dies on or after their required beginning date (RBD) for taking distributions because the “at-least-as-rapidly” rule of Code section 401(a)(9)(B)(i) applies in such case, (2) following the death of an EDB who, pursuant to Code section 401(a)(9)(B)(iii), is “stretching” the benefits they inherited from the original account owner who died before the RBD, and (3) when a minor child beneficiary reaches the age of majority who pursuant to Code section 401(a)(9)(E)(iii), will no longer be considered an eligible designated beneficiary.
10-year rule scenarios covered by the notice:
(1) Generally, a designated beneficiary who is not an EDB and who inherits the account on or after the original owner’s RBD, is required to take annual distributions with the entire interest distributed by the end of the calendar year that includes the tenth anniversary of the date of the original owner’s death.
(2) A successor beneficiary of an EDB who was taking life expectancy distributions, is generally required to take annual distributions with the entire interest distributed by the end of the calendar year that includes the tenth anniversary of the date of the EDB’s death.
(3) A minor child beneficiary who reaches age of majority, is generally required to take annual distributions with the entire interest distributed by the end of the calendar year that includes the tenth anniversary of the date the minor child reached age of majority.
50% Excise Tax Relief for 2021 and 2022
Notice 2022-53 also provides relief for failures in 2021 and 2022 to comply with the recent IRS interpretation of the 10-year rule. Under the relief, a DCRP that failed to make a “specified RMD” will not be treated as having failed to satisfy section 401(a)(9) merely because it did not make the required distribution. Likewise, to the extent that a beneficiary failed to take a “specified RMD,” the IRS will not impose the 50% excise tax that otherwise applies to RMD failures. In this instance, a beneficiary who paid an excise tax for 2021 can get a refund.
Important: The above relief only relates to beneficiaries subject to the 10-year rule, not to beneficiaries eligible to take true life expectancy distributions.
ICP 10-Year Periodic Withdrawal Plan
The Integrated Cashiering Platform (ICP) was enhanced earlier this year with an “Inherited 10 Year” periodic distribution plan type specifically for Inherited IRAs, also known as IRA Beneficiary Distribution Accounts (IRA-BDAs). The Inherited 10 Year plan was designed to distribute the entire account balance by the distribution plan’s end date, which is on December 31 of the 10th year after the original IRA owner’s date of death.
TC130659(1222)1