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IRS Proposes New Regulations on Required Minimum Distributions (RMDs)

March 09, 2022

Turning 72 in 2022? Time to take your first required minimum distribution (RMD) from your retirement accounts. The IRS has just proposed new regulations. Read on.

Did you read our blog, Turning 72 in 2022? Here are your RMD Requirements? You will want to read up on newly proposed regulations. We have the details here.

What is an RMD?

Your required minimum distribution is the minimum amount you must withdraw from your account each year. This applies to Individual Retirement Accounts (IRAs), SIMPLE IRAs, and SEP IRAs,. Roth IRAs do not require withdrawals until after the death of the account owner.

Some things of note:

  • You can withdraw more than the minimum required amount.
  • Your withdrawals will be included in your taxable income except for any part that was taxed before (your basis) or that can be received tax-free (such as qualified distributions from designated Roth accounts).
  • The Setting Every Community Up for Retirement Enhancement (“SECURE”) Act, effective January 1, 2020 changes the RMD age to 72 for everyone born on July 1, 1949 or later.
  • The SECURE Act also eliminates Stretch IRAs. Previously if you named anyone other than a spouse as the beneficiary of your IRA, the beneficiary could choose to take distributions over their lifetime and to pass what is left onto future generations (called the "stretch" option). The RMDs were calculated based on the beneficiary’s life expectancy. The SECURE Act requires non-spouse beneficiaries of an IRA to withdraw all the funds in the IRA within 10 years of the IRA holder’s death.

What are the proposed regulations?

The IRS’ proposed regulations update the existing regulations under the SECURE Act.

This includes:

  • Clarification of how the 10-year rule applies when both the employee and designated beneficiary pass away—In this situation, the beneficiary of the designated beneficiary would be subject to the 10 year rule (if the employee died before Section 401(a)(9)(H)’s effective date for the plan AND the employee had only one designated beneficiary)
  • RMD starting age- For beneficiaries of employees who died before reaching age 70 ½ who would have reached that age on or after January 1, 2020, the beneficiary can wait until the calendar year in which the deceased employee would have reached age 72 to start taking RMDs.
  • Eligible beneficiaries- Under the proposed regulations, the “age of majority” for the child of an employee would be 21.
  • See through rules for trusts- The proposed changes would retain the existing “see-through” rules for trusts as beneficiaries.
  • Defined benefit plans- Under the proposed regs, defined benefit plans must take an actuarial increase into account for the period after age 70 ½ where the employee was not receiving benefits.
  • Updates to the definition of “spouse” to account for gender changes to Regs Sec 301.7701-18 made in response to Obergefell v. Hodges.

If passed, when do the regulations apply?

The proposed regulations would generally apply when determining RMDs for calendar years beginning on or after January 1, 2022.

Questions? Contact us.

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