Perspectives : Fiduciary Regulatory | May 20, 2024

IRS releases required minimum distribution relief for certain beneficiaries

On April 16, 2024, the IRS released Notice 2024-35 (the Notice) extending temporary relief for certain required minimum distributions (RMDs) under Internal Revenue Code (IRC) 401(a)(9) through 2024. The guidance follows the relief provided in Notice 2022-53 and 2023-54 related to the interpretation of the SECURE Act’s 10-year rule.1 

Background

The SECURE Act of 2019 changed how a beneficiary of an inherited retirement account takes RMDs by limiting what beneficiaries can use the life expectancy method to calculate RMDs. 

For participants who died on or after January 1, 2020, the SECURE Act allows eligible designated beneficiaries (EDB)2 to use the life expectancy calculation method for RMDs. Non-EDBs3 must receive a full distribution for the inherited account by the end of the 10th calendar year following the calendar year of death (the “10-year rule”).  

Several years ago, the IRS issued a proposed RMD regulation indicating that beneficiaries subject to the 10-year rule must take an annual RMD payment in each year (otherwise known as the “at least as rapidly rule”). This language caused confusion among taxpayers and retirement plan providers, prompting the IRS to issue intervening guidance for 2022, 2023, and now 2024, until final regulations are made.

Key takeaways from the proposed regulation

  • The Notice extends relief previously provided in 2022 and 2023 (Notices 2022-53 and 2023-54), which stated that plans would not risk qualification for not satisfying the RMD rules under IRC 401(a)(9) for failing to make annual RMD payments under the “at least as rapidly rule.”

  • Beneficiaries using the 10-year rule will not be subject to an excise tax for missed RMDs if annual RMDs under the “at least as rapidly rule” are not received. 

  • The RMD relief outlined in this guidance does not apply to eligible designated beneficiaries or to non-spouse beneficiaries who inherited an account before 2020.

What’s next

In Notice 2024-35, the IRS indicated that the anticipated final RMD regulations under IRC 401(a)(9) will not apply to calendar years prior to January 1, 2025. As always, Vanguard will share important updates as they become available and is here to guide plan sponsors through any SECURE 2.0 changes over the coming weeks, months, and years.
1 Generally, a designated beneficiary is required to liquidate the account by the end of the 10th year following the year of the participant's death.
2 An eligible designated beneficiary is a beneficiary who is a surviving spouse, minor child, disabled or chronically ill, or not more than 10 years younger than the participant.
3 A non-eligible designated beneficiary is someone who is not the surviving spouse, not a minor child (under 21, per the proposed regulation), not disabled or chronically ill, or who is more than 10 years younger than the deceased participant.