By Mark Hodges, CPA, CFP®, Tax Senior Manager
On July 14, 2023, the IRS released Notice 2023-54. This notice provides additional guidance for certain inherited IRA beneficiaries that were required to make required minimum distributions (RMDs) for tax years 2020, 2021, 2022, and 2023 under proposed regulations.
The notice also addresses issues related to 2023 RMDs to provide guidance on implementation of new beginning dates for required distributions due to changes under the SECURE Act 2.0 (increase in the required beginning date (RBD) for RMDs from age 72 to age 73 starting on January 1, 2023).
Penalty free relief for RMDs not taken in 2023
Guidance issued under proposed regulations interpreting the amendments made to IRC Section 401(a)(9) indicated that beneficiaries of inherited IRA accounts who do not qualify as eligible designated beneficiaries (EDBs) are required to continue taking RMDs over the 10-year required pay-out period on an annual basis if the original owner had already begun taking RMDs during their lifetime. Some commentators who had previously assumed that ineligible designated beneficiaries would be permitted to leave the inherited accounts to grow until the end of the 10-year period requested transitional relief from the IRS if there are no changes to the proposed regulations in the finalized form. In response, the IRS had previously provided relief for 2021 and 2022 RMDs for these ineligible designated beneficiaries in Notice 2022-53 by preventing enforcement of the 50% penalty if taxpayers do not withdraw 2021 and 2022 RMDs. While we await finalized regulations, Notice 2023-54 extends penalty relief for ineligible designated beneficiaries that do not take RMDs in 2023 as required under the proposed regulations. Similar relief is provided in the notice for employer sponsored defined contribution plans that fail to make RMDs for 2023 under the proposed regulations.
Notice 2023-54 also pushes back the timeline for implementation of final regulations related to these issues to be effective no earlier than the 2024 distribution year.
Who qualifies as an eligible designated beneficiary (EDB)?
EDBs are not subject to these 10-year payout rules. EDBs include spousal beneficiaries, beneficiaries who are minors, beneficiaries who are not more than 10 years younger than the IRA owner, and chronically ill/disabled beneficiaries (as defined by the IRS).
Tax free rollover relief
The SECURE Act 2.0 increased the beginning age for RMDs to age 73 beginning in 2023. Due to delays in implementing the new rules, many taxpayers were notified by their IRA custodians that because they had turned 72 before or during 2023, they were required to take RMDs for 2023. Subsequently, these distributions were not eligible for tax free rollover treatment since the custodian classified distributions as RMDs. Notice 2023-54 offers transitional relief for taxpayers in this situation by extending the 60-day rollover period to September 30, 2023, for distributions made in 2023 prior to July 31, 2023, to individuals who turned 72 in 2023 and took RMDs under outdated procedures.
Unanswered item for ineligible designated beneficiaries
One item that is left unanswered in the notice is whether ineligible designated beneficiaries will be required to “catch up” on skipped RMDs when final regulations are issued. Additionally, will the 10-year period be deemed to start once the final regulations are issued? Keiter continues to monitor IRS developments in this area and will keep you updated on new or changing regulations.
Questions on how this may impact your inherited IRA or estate planning? Contact your Keiter Opportunity Advisor.
About the Author
Mark Hodges, CPA, CFP®, Tax Senior Manager
To assist his clients in meeting their goals and objectives, Mark takes a team approach—working collaboratively with his clients, their other advisors, and legal counsel. He also specializes in identifying and helping to implement trust and estate planning opportunities for his clients. Mark is a member of Keiter’s Family, Executive & Entrepreneur Advisory Services team.
More Insights from Mark HodgesThe information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.
