On October 7th, 2022, the IRS released Notice 2022-53 announcing they intend to waive the 50% excise tax on certain required minimum distributions (RMDs) from retirement plans in 2021 and 2022. Listed below is a brief backstory to get you up to speed.

Backstory:

• In December 2019, Congress passed the Setting Every Community Up for Retirement Enhancement Act of 2019 (The SECURE Act). Embedded in the law was a new 10-year distribution rule from inherited Qualified Plans and IRAs for designated beneficiaries¹. The language in the SECURE Act led practitioners to believe that designated beneficiaries who inherited Qualified Plans and IRAs from an account owner who died after December 31, 2019 and after their required beginning date (mainly age 72) had 10 years to liquidate the inherited retirement account, but were not required to take required minimum distributions (RMDs).
• On February 24, 2022, the IRS released proposed regulations stating that designated beneficiaries subject to the 10-year rule were still required to take annual RMDs each year. This position by the IRS created backlash from many parties, especially since one of the main reasons for changing the inherited RMD laws were to make them less complicated.
• After much debate, on October 7th, 2022, the IRS released Notice 2022-53, which provided much needed clarity as the IRS works to finalize the regulations.

Important takeaways from Notice 2022-53:

• The IRS has waived the 50% excess tax on RMD shortfalls for beneficiaries in 2021 and 2022 that are subject to the SECURE ACT 10-year rule (account owner died after required beginning date). However, if the taxpayer already paid the excise tax on their 2021 tax return for a missed specified RMD, a refund may be requested.
• The missed 2021 and 2022 specified RMDs do not need to be satisfied. The IRS intends to issue final regulations no earlier than the 2023 calendar year.
• This relief does not apply to an RMD shortfall for account owners who are still living, eligible designated beneficiaries², or designated beneficiaries who are subject to the old RMD rules (account owner died before/on December 31, 2019). Notice 2022-53 impacts the following successor beneficiaries:
  • The account owner died before 2020, and
    • The beneficiary is a designated beneficiary who was taking life expectancy distributions and,
    • The designated beneficiary died in 2020 or 2021
  • The account owner died in 2020 or 2021, and
    • The beneficiary is an eligible designated beneficiary who was taking life expectancy distributions and,
    • The eligible designated beneficiary died in 2020 or 2021
• Plan sponsors have relief until December 31, 2025 to implement the SECURE Act changes, providing additional time to wait on the IRS’s final regulations.

Bottom Line:

As of now, the IRS has not released final regulations on whether RMDs will be required for inherited qualified and IRA accounts subject to the 10-year rule. They intend to issue final regulations no earlier than the 2023 calendar year. The proposed regulations, Notice 2022-53, provide penalty relief for missed RMD’s in 2021 and 2022 for beneficiaries that are subject to the SECURE ACT 10-year rule and these RMD shortfalls do not have to be satisfied. Therefore, these specified RMDs do not need to be taken in 2022, but taxpayers will have to wait on the IRS for more guidance if RMDs will be required starting in 2023.

Krilogy Tax Services primarily serves Krilogy clients who seek additional tax advice and guidance, along with tax preparation of clients’ annual tax returns. Creating and managing a client’s financial picture involves a seamless connection between financial advising and tax planning. This comprehensive approach and commitment to client service is the foundation of Krilogy.

Krilogy^® does not provide tax and legal advice. Krilogy^® is affiliated with Krilogy Tax Services, LLC. Krilogy^® Tax Services provides tax planning and preparation services for an additional cost to Krilogy^® clients. You should consult your attorney or qualified tax advisor regarding your situation.

¹Designated beneficiary- (1) non-spouses, (2) certain trusts.
²Eligible designated beneficiary- (1) the owner’s surviving spouse, (2) the owner’s child who is less than 18 years of age, (3) a disabled individual, (4) a chronically ill individual, (5) any other individual who is not more than 10 years younger than the deceased IRA owner.

Important Disclosures