*Part of our Quarterly Newsletter Feature – “Personal Financial Planning with Lisa Mrkall”
During the summer, the IRS released final regulations updating the required minimum distribution (RMD) rules for retirement plans. The Secure Act and Secure Act 2.0 made significant changes to the RMD rules applicable to retirement plan participants during their lifetimes and to beneficiaries after their deaths. For participants, a key change was the applicable required beginning date (RBD) for commencing plan distributions. Prior to the Secure Act, this date was defined as the later of April 1 of the calendar year following the year in which the participant attained age 70½ or the year the participant retired from employment with the employer maintaining the plan. The RBD age was increased by the Secure Act from 70½ to 72, and then to 73 or 75 with Secure 2.0. Under the final regulations, the applicable RBD age for a participant is:
- Age 70½, if born before July 1, 1949
- Age 72 if born on/after July 1, 1949, and before January 1, 1951
- Age 73, if born on/after January 1, 1951, but before January 1, 1959
- Age 75, if born on/after January 1, 1960
As expected, under the final regulations, distributions to a beneficiary after the participant’s death can no longer be spread over the lifetime of the beneficiary but must be paid out within 10 years unless the beneficiary is an “eligible designated beneficiary” (i.e., a spouse, minor child, disabled or chronically ill, or not more than 10 years younger than the participant). Furthermore, if the participant’s death occurs after their distributions have begun, the benefits to the beneficiary must continue “at least as rapidly” as required by the Internal Revenue Code and comply with the 10-year rule. The final regulations interpret the Code language to require the beneficiary to continue annual distributions after the participant’s death rather than allowing the beneficiary to delay receipt of the remaining benefit, provided the full amount is distributed within 10 years of the death.
Additionally, the final regulations allow a surviving spouse who is the sole eligible designated beneficiary to elect to have the post-death RMDs calculated using the actuarial table applicable to a participant’s lifetime distributions, which would allow for smaller annual distributions rather than under the single life table normally applicable to beneficiaries. The final regulations and the new 2024 proposed regulations discuss the application of this rule and default rules applicable where the plan terms are silent.
Overall, the final regulations are very comprehensive and address many other aspects of RMDs, including distributions to minor children upon attainment of age 21 and to beneficiaries under certain types of trusts. By staying informed and understanding the updated RMD rules, individuals can make more strategic decisions regarding their retirement savings and distributions.
For more information, contact Lisa Mrkall, CPA/PFS, MBA, Partner, Tronconi Segarra & Associates LLP, at 716.633.1373 or lmrkall@tsacpa.com.
