Remember RMDs Affect Beneficiaries, IRS Reminds

Required minimum distributions (RMDs) are more than regulatory requirements—they affect real people. In its latest issue of Employee Plans News, the IRS provides a refresher concerning the application of the RMD rules regarding plan beneficiaries. 

Spousal Beneficiaries 

Spousal beneficiaries whose account owner (1) dies after 2019, and (2) whose death occurred before the required beginning date, have two options.

1. Roll the account into their own IRA; they: 

• treat it as their own IRA;
• take distributions based on their own age; and  
• should note that distributions from their own IRA are subject to the 10% additional tax on early distributions.

2. Keep the account as an inherited account; they:

• take distributions based on their own life expectancy, or follow the 10-year rule; 
• should not that they are not subject to the 10% additional tax on early distributions. 

If the account owner died after the required beginning date (RBD), spousal beneficiaries have two options.

1. Roll over the account into their own IRA, if spouse is sole beneficiary; they: 

• treat it as their own IRA;
• take distributions based on their own age; and 
• should remember that they are subject to the 10% additional tax on early distributions before age 59½.

2. Keep the account as an inherited account; they then must take distributions based on their own life expectancy or the decedent’s life expectancy, whichever is longer. 

Non-spouse Beneficiaries – Death of the account owner after 2019

Options for a non-spouse beneficiary of the account owner who died depend on whether they are (1) an eligible designated beneficiary or (2) a designated beneficiary. 

Eligible designated beneficiaries include:

• surviving spouses;
• minor children of the deceased account holder;
• disabled or chronically ill individuals; and 
• individuals who are not more than 10 years younger than the IRA owner or plan participant.

Eligible designated beneficiaries may take distributions over the longer of their own life expectancy and the account owner’s remaining life expectancy, or follow the 10-year rule if the original account owner died before their RBD.

Designated/Non-designated Beneficiaries

Designated beneficiaries who are not eligible designated beneficiaries follow the 10-year rule. 

Non-designated beneficiaries must follow the 5-year rule if the owner died before distributions were required to begin, and take distributions over the life expectancy of the original owner if they died after distributions were required to begin. 

Notice 2023-54

The IRS also notes that Notice 2023-54, which it issued on July 14, 2023, provides guidance on RMDs, including relief concerning RMDs and rollovers in accordance with Section 107 of SECURE 2.0. The IRS reminds that some non-spouse beneficiaries that are subject to the 10-year rule will not violate the RMD rules if they failed to make distributions in 2023.