Special Relief for Certain RMDs
The IRS recently issued Notice 2023-54, which provides two separate types of relief related to certain required minimum distributions (RMDs). The two areas are unrelated to each other.
IRA Owners Born in 1951
For the first area of relief, the notice provides relief for IRA owners who were born in 1951. Such individuals reach age 72 during 2023, and they would have been required to start taking RMDs for the 2023 tax year before the age for the beginning date for RMDs was changed. (As discussed in our post on January 3, 2023, the SECURE 2.0 Act, enacted on December 29, 2023, raised the age for beginning RMDs from 72 to 73.)
Such individuals who were born in 1951 and who received an amount that would have been an RMD before the age rule was changed are now given more time to rollover the amount that would have been the RMD to another IRA, beyond the normal 60-day limit.
To be eligible, the original distribution must have occurred between January 1, 2023 and July 31, 2023, and the rollover of the distribution must occur by September 30, 2023. Only the amount that would have been the RMD had the age rule not been changed is eligible for the special rollover relief. Rollovers that occur after September 30, 2023 must be made within the normal 60-day limit.
10/10/23 clarification: These relief provisions also apply to distributions made between January 1, 2023 and July 31, 2023 by employer-sponsored plans, if such distributions were made to those who were born in 1951. The relief applies only for distributions from the plan that would have been an RMD, had the age rule not changed.
We will discuss many changes from the SECURE 2.0 Act in our upcoming seminars in December and January. If you are not already registered, register here.
One More Year of Special Relief for Inherited Accounts Subject to the 10-Year Rule
The second area of relief address an issue discussed on pages 18 to 23 of in the Tax Year 2022 M+O=CPE Individual Tax Year-End Workshop Reference Book. The IRS had previously provided special relief from penalties for not taking RMDs from certain inherited retirement accounts in Notice 2022-53, and the new notice extends this relief for one more year.
Proposed regulations issued earlier in 2022 required certain beneficiaries who inherited a retirement account and who were subject to the 10-year rule for distributing the balance of such accounts to receive certain annual distributions in each of the years following the date of death of the original account owner prior to reaching the 10th year.
The original relief in Notice 2022-53 applied to the 2021 and 2022 tax years and waived the penalty for not taking such annual distributions. Notice 2023-54 extends this relief for one more year, to the 2023 tax year.
As a result, the special relief is now also available for 2023 for beneficiaries who inherited a retirement account where the original owner died in 2020, 2021 or 2022, where the original owner died after reaching the required beginning date, and where the beneficiaries are subject to the 10-year rule for distributing the balance of the account.
If such beneficiaries did not receive an annual distribution from the inherited account during 2023, they will not be subject to the penalty for failing to withdraw an RMD from that inherited account.