IRS’ new rules on RMDs, reflecting SECURE 2.0 changes: Industry group wants more time

In July, the Department of the Treasury and the Internal Revenue Service issued final regulations updating the required minimum distribution (RMD) rules, since the passage of SECURE 2.0. However, the American Retirement Association (ARA) is asking for the effective date to be pushed back and for certain provisions to be clarified, in a letter sent to the IRS.

The final IRS regulations reflected changes made by the SECURE Act and the SECURE 2.0 Act impacting retirement plan participants, IRA owners and their beneficiaries.

As proposed, the new IRS regulations would apply for purposes of determining RMDs for calendar years beginning on or after Jan. 1, 2025. However, in its letter to the IRS, the ARA suggested that the effective date of the regulation should be delayed until 18 months after publication of the final rule.

“Nearly all plan sponsors rely on service providers to monitor and calculate RMDs,” said the letter. “These service providers will need to process the final regulations and then program their recordkeeping systems to account for the final regulations. Our recordkeeping members regularly report that a period of 18 months is the minimum amount of time necessary to build out system updates. Providing adequate time to ensure proper implementation will promote tax compliance and sound administration.”

Beginning in 2024, SECURE 2.0 allows a beneficiary to elect to be treated as the “employee” for RMD purposes. Prior, the beneficiary could either roll over the IRA into their own or could take it in an inherited IRA.

Related: IRS: New guidance on required minimum distributions, reflecting SECURE 2.0 changes

Eligible beneficiaries are a participant’s spouse, someone disabled or another benefificary10 years younger. A partial exception from the 10-year rule is made for heirs younger than 21: Their 10-year clock does not start until they turn 21.

The IRS proposal says that if the deceased participant had not already begun to take RMDs, this election would be considered automatic, but must be affirmatively elected if the participant had already begun taking them.

However, the ARA is urging the IRS to make the election automatic but revocable, “if the spouse provides timely notice to the plan administrator by the deadline established by the plan administrator, which may not be earlier than the end of the calendar year preceding the first calendar in which RMDs must commence to the spouse,” read the letter.