Required minimum distributions (RMDs) are the minimum amounts you must withdraw from your retirement accounts each year. Typically, you must commence withdrawals from traditional IRA, SEP IRA, SIMPLE IRA, and retirement plan accounts once you reach age 72 (or 73 if you hit this milestone after Dec. 31, 2022).
Transitioning to the recent developments, on April 16, 2024, the IRS issued Notice 2024-35, offering vital guidance and relief regarding certain provisions of after-death required minimum distribution (RMD) rules outlined in Code section 401(a)(9). According to these rules, RMDs must commence by 12/31 of the year following the death of the account holder. It’s important to note that if the original account holder didn’t take an RMD in the year of death, one must be taken from the account by 12/31 of the year the original account holder passed away.
How the IRS notice impacts taxpayers and plan administrators:
1. Final RMD Regulations: Firstly, the notice addresses the final RMD regulations, expected to take effect no earlier than 2025. This timeline acts as a foundational point for determining RMDs for calendar years starting on or after January 1, 2025.
2. Extension of the 10-Year Rule Relief: Moving on to the crux of the matter, the notice extends relief concerning the IRS interpretation of the “10-year rule” for an additional year, covering 2024. This rule, as interpreted in the 2022 proposed RMD regulations, has stirred debate among taxpayers regarding the timing and necessity of distributions over a 10-year period.
Connecting to Previous Guidance:
In previous years, relief was granted through Notice 2023-54 and Notice 2022-53, referred to as the “Prior Guidance.” This relief encompassed scenarios where plans and taxpayers adopted an alternative interpretation of the 10-year rule for the years 2021, 2022, or 2023. It included exemptions for defined contribution plans failing to make a specified RMD and waivers on excise tax for taxpayers who missed taking a specified RMD.
Extending Relief to 2024:
Now, Notice 2024-35 extends the same relief to plans and taxpayers for the year 2024. It defines “specified RMD” akin to the Prior Guidance, tailored for 2024 RMDs. This definition includes beneficiaries of deceased employees meeting specific criteria, as well as beneficiaries of deceased Eligible Designated Beneficiaries (EDBs), as outlined in the SECURE Act.
Concluding Thoughts:
Basically, If you’re an IRA beneficiary subject to the 10-year payout period and would have had a 2024 required minimum distribution (RMD), this notice will excuse those RMDs .
Comprehending the nuances of Notice 2024-35 is crucial for both plan administrators and taxpayers. It not only offers relief but also provides a roadmap for compliance amid evolving regulations. As we navigate these changes, staying informed and seeking professional guidance are essential to ensure adherence to the updated RMD rules. In summary, Notice 2024-35 stands as a beacon of clarity amidst the complexities of RMD regulations, furnishing much-needed relief and guidance for navigating the evolving landscape of retirement planning.
When it comes time to discuss RMDs, it is best to start that conversation with your financial advisor and/or tax advisor to develop a plan. For answers to your self-directed retirement questions, please reach out to us at uDirect IRA Services at info@uDirectIRA.com. To get started with your own self-directed account, click HERE.
