By Ian Berger, JD
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If you’re an IRA beneficiary subject to the 10-year payout period and would have had a 2023 RMD (required minimum distribution), you’re in luck. In Notice 2023-54 issued last Friday (July 14), the IRS said it would excuse those RMDs. The IRS also said it would extend the 60-day rollover deadline for IRA (and plan) account owners born in 1951 who received distributions in 2023 that weren’t necessary because of the SECURE 2.0 change that delayed their first RMD year from 2023 to 2024.
Relief for Missed 2023 RMDs
The SECURE Act provided that most non-spouse beneficiaries of IRA owners (or plan participants) who died in 2020 or later could no longer stretch RMDs over their lifetime. Instead, these “non-eligible designated beneficiaries” (NEDBs) became subject to a 10-year payment rule. In its proposed SECURE Act regulations (from February 2022), the IRS surprised everyone by saying that, in addition to the 10-year payout, annual RMDs are required in years of 1-9 of the 10-year period for NEDBs if the account owner died on or after his required beginning date (generally, April 1 of the year after the year the owner turns 73).
The IRS position meant that NEDBs of account owners who died in 2020 after their required beginning date should have taken their first required distribution in 2021 (year 1 of the 10-year period) – even though nobody thought that was necessary until February 2022 (when the proposed regs came out).
Even the IRS realized this was unfair. So, in October 2022, the IRS issued Notice 2022-53, which said that it would excuse RMDs for anyone in this group of NEDBs who missed 2021 RMDs. For good measure, the IRS also relieved RMDs for missed 2022 RMDs for this group. And, it gave relief for 2022 RMDs for NEDBs who inherited in 2021 from an account owner who died after his required beginning date.=
Notice 2023-54 extended that relief even further. The new Notice added another year of relief by waiving 2023 RMDs for NEDBs of IRA owners who died in 2020 or 2021 after the required beginning date. It also excused 2023 RMDs for NEDBs of owners who died in 2022 after the required beginning date.
So, if you’re an NEBD and inherited in 2020 from an IRA owner who died after the required beginning date, your first three years of annual RMDs (2021, 2022 and 2023) are now waived. If you’re an NEBD and inherited in 2021 from an owner who died after the required beginning date, your first two years of RMDs (2022 and 2023) are waived. And, if you’re an NEDB who inherited in 2022 from such an IRA owner, your first year of RMDs (2023) is forgiven.
60-Day Rollover Relief
Notice 2023-54 also gave relief if you’re an IRA owner born in 1951 and you received (or will receive) an unwanted distribution between January 1 and July 31, 2023 that you want to roll back. If you celebrate your 72nd birthday this year, your first RMD year would have been 2023 under the original SECURE Act, but it is now 2024 under SECURE 2.0. This is because SECURE 2.0 delays the age for beginning RMDs from age 72 to age 73. Due to the late enactment of SECURE 2.0, some IRA custodians and plans may have inadvertently paid you “RMDs” that were not technically RMDs (because of the SECURE 2.0 change). If you don’t want these distributions, the IRS is giving you until September 30, 2023 to roll the funds back.