Proposed RMD Regulations Initial Highlights

As announced on February 23, 2022, the Internal Revenue Service (IRS) has released proposed regulations related to required minimum distributions (RMDs). The IRS released the proposed regulations due in large part to changes made by the SECURE Act, including increasing the RMD age from age 70½ to age 72 and eliminating the life expectancy options for many beneficiaries. While review of these substantial regulations is ongoing and additional details will be provided, a few initial highlights are worth noting.

• If an account owner dies after the required beginning date, the proposal would require that the 10-year rule include annual payments. Although the SECURE Act is silent regarding the applicability of annual distributions under the 10-year rule, the IRS is contending that the old “at least as rapidly” rule applies in conjunction with the new 10-year rule.
• Spousal beneficiaries would need to elect to treat a decedent’s IRA as their own by the later of December 31 in the year following the year of the account owner’s death, or age 72.
• The proposed regulations clarify that the age of majority for minor eligible designated beneficiaries is age 21.
• An exception has been added that allows an automatic waiver of the 50 percent excess accumulation penalty tax if a year-of-death RMD was missed and the beneficiary removes the required amount by his tax return due date, plus extensions for the year that the RMD should have been taken.
• If an account owner has multiple beneficiaries and one or more of the beneficiaries is not an eligible designated beneficiary, then the account owner is generally treated as having no eligible designated beneficiaries. Exceptions apply to children of the account owner and to multi-beneficiary trusts.

The regulations are proposed to become effective in 2022 for 2022 calendar distribution years. But because written comments are being accepted until May 25, 2022, and a public hearing is scheduled for June 15, 2022, the anticipated timing of the final rule is likely to be late summer or fall—at the earliest. For 2021, the existing regulations must be applied, along with a good faith application of the increased RMD age and the change in beneficiary options. Application of the proposed regulations for 2021 will result in compliance with the good faith requirement.