The Internal Revenue Service (IRS) recently extended relief for certain beneficiaries regarding required minimum distributions (RMDs) through 2024. Notice 2024-35, released on April 16, 2024, provides an extension of existing relief for beneficiaries taking RMDs over a 10-year period following the death of a participant or IRA owner who had already begun RMDs.
This extension coincides with the Treasury and IRS’s intentions to finalize RMD regulations, expected to apply to determining RMDs for calendar years starting on or after January 1, 2025.
Background:
The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE) introduced modifications to the RMD payment period for certain beneficiaries. SECURE limits the option to extend RMDs over life expectancy to Eligible Designated Beneficiaries (EDBs), including surviving spouses, children under 21, disabled individuals, those chronically ill, or individuals not more than 10 years younger than the participant. Other individuals named as beneficiaries are termed “designated beneficiaries” and must satisfy RMD requirements by fully distributing the deceased participant’s account by December 31 of the year containing the 10th anniversary of their death.
In February 2022, the Treasury and IRS proposed regulations addressing how designated beneficiaries satisfy the 10-year period. The proposed regulations stipulate that a designated beneficiary must take an RMD at least annually over the 10-year period following the participant’s death. Additionally, once a child EDB reaches age 21, they must take annual RMDs over the remaining 10-year period. The proposed regulations also require the beneficiary of a deceased EDB taking RMDs over their life expectancy to continue taking RMDs at least annually over the 10-year period following the EDB’s death.
This IRS position sparked comments from benefits practitioners who interpreted SECURE differently, suggesting that such beneficiaries need not take annual RMDs as long as the account was fully distributed by the 10th anniversary of the participant or IRA owner’s death.
History of Relief:
In October 2022, the IRS issued Notice 2022-53 to provide relief for 2021 and 2022 RMDs to designated beneficiaries operating under the 10-year rule who did not take an annual RMD before the year containing the 10th anniversary of the participant or IRA owner’s death. Notice 2022-53 also extended similar relief to minor child EDBs reaching age 21 and beneficiaries of deceased EDBs, waiving the IRS’s 50% excise tax on failures to take timely RMDs.
In July 2023, Notice 2023-54 extended relief for required minimum distributions (RMDs) to include those for the year 2023.
Under the extended relief provided by Notice 2024-35, designated beneficiaries who did not take an annual RMD following the death of the participant or IRA owner in 2021, 2022, 2023, or 2024 will not be considered to have failed to meet the annual RMD requirements governed by the 10-year rule. This relief also applies to children who were Eligible Designated Beneficiaries (EDBs) of the deceased participant or IRA owner and did not take annual RMDs in 2021, 2022, 2023, or 2024 upon reaching age 21. Additionally, beneficiaries of an EDB who did not take an annual RMD following the EDB’s death in 2021, 2022, 2023, or 2024 are covered under this extended relief.