SECURE Act background
The SECURE Act made a number of changes to the RMD rules, most notably (1) increasing the age at which retirement savers must begin to receive distributions from their retirement benefits from April 1 following the year in which the participant reaches age 70½ to April 1 following the year in which the individual reaches age 72, effective for individuals born after June 30, 1949; and (2) for defined contribution plans, removing the ability for certain beneficiaries of a deceased participant to stretch distributions over the lifetime of the beneficiary instead requiring distributions within 10 years of the participant’s death to designated beneficiaries that do not qualify as “eligible designated beneficiaries.” Eligible designated beneficiaries include the participant’s surviving spouse; the participant’s child who has not reached the age of majority (for only so long as the child has not reached majority); a disabled or chronically ill individual meeting specific definitions; and an individual not more than 10 years younger than the participant.
In addition to implementing the SECURE Act changes, the Proposed Regulations incorporate a number of other clarifications and guidance on RMDs previously issued in sub-regulatory guidance. The Proposed Regulations fully restate regulations previously issued under Section 401(a)(9) of the Internal Revenue Code and also update regulations under Section 402 regarding rollovers, Section 403 (conforming changes for 403(b) plans), Section 408 regarding IRAs, and Section 4974 regarding excise taxes for late RMDs.
Key updates and clarifications
Below are a few of the key clarifications in the Proposed Regulations:
- The Proposed Regulations apply a birthdate rule to determine whether an individual’s required beginning date (RBD) is based on age 70½ or age 72. There was some ambiguity in the statutory language as to whether an individual was required to survive to age 70½ in order to have the later age 72 age apply to distributions. The Proposed Regulations endorse the simple birthdate rule – i.e., if the participant’s birthdate is prior to July 1, 1949, the age is 70½, and if on or after July 1, 1949, the age is 72.
- For purposes of determining whether a child of the participant has reached “majority” – which is relevant to whether the child constitutes an “eligible designated beneficiary” – the Proposed Regulations apply an age 21 cutoff (rather than age 18, which many had assumed based on the age of majority in most states). However, the Proposed Regulations permit defined benefit plans to maintain their prior definition of “majority.”