Final Regulations Issued by Internal Revenue Service (IRS) on the SECURE Act

08.23.24

The IRS recently issued final regulations which impact the changes to the required minimum distribution (“RMD”) rules and the Required Beginning Date (“RBD”).

The “Setting Every Community Up for Retirement Enhancement Act of 2019,” commonly known as the SECURE Act, and the related “2022 SECURE 2.0 Act” are collectively referred to as the “SECURE Act.” Generally, Section 401(a)(9) governs distributions from a qualified plan, for example IRAs, annuity contracts, custodial accounts, Section 403(b) plans and deferred compensation plans.

The RMD rules generally require distributions from certain tax-favored retirement plans after an employee/account owner reaches a specific age and after death. The rules set forth a RBD for distributions and identify the period over which the employee’s or account owner’s entire interest must be distributed.

• The new 10-year RMD rule remains and applies starting 2025. There is no longer a stretch distribution for an IRA over the lifetime of a non-spouse beneficiary.

• The applicable 10-year period for deaths occurring after 2019 has not been extended, but related penalties have been waived for 2019-2024. For clarity, the 10-year time frame does not start in 2025 when these regulations begin to apply, and end in 2035, the clock begins the year the decedent dies. The beneficiary will need to take out a certain amount each year starting in 2025 to complete the distribution within the 10 year time frame, but their 10 year time frame may have started earlier, so the distributions may be larger each year to catch up. Example: If a beneficiary of an inherited IRA (non-spouse) inherited from a 2021 decedent, they would have to distribute the entire account balance by the end of 2031, and will need to make RMDs each year from 2025 through 2031.

• The Required Beginning Date (“RBD”) age threshold for RMDs has increased.
  • For participants attaining age 72 after 12/31/2022 and age 73 before 1/1/2033, the applicable age is 73.
  • For participants attaining age 74 after 12/31/2032, the applicable age is 75.

If you need assistance understanding the impact of these IRS regulations on your accounts, please contact your financial advisor, accountant, or the Aronberg Goldgehn attorney with whom you regularly work.