December 2024 Compliance News Article

Extension of Certain Proposed RMD Regulations

The Internal Revenue Service (IRS) issued Announcement 2025-2 (the Announcement), which extends the effective date of certain provisions in proposed required minimum distribution (RMD) regulations, previously published on July 19, 2024. The effective date of certain provisions will apply no earlier than the 2026 distribution calendar year.

Background

On July 19, 2024, the IRS jointly issued final and proposed RMD regulations. The updates reflect recent IRS guidance as well as congressional laws, including changes introduced by the Setting Every Community Up for Retirement Enhancement Act of 2019 and the SECURE 2.0 Act of 2022. These updates impact defined benefit retirement plans, defined contribution retirement plans (such as money purchase, 401(k), profit sharing, 403(b), and eligible governmental 457(b) retirement plans), and individual retirement accounts and annuities (IRA).

Deadline Extended

The following provisions in the proposed RMD regulations, previously set to become effective on January 1, 2025, will now apply no earlier than the 2026 distribution calendar year:

The eligibility status of a designated beneficiary of a surviving spouse if the surviving spouse dies
Changes to certain provisions related to RMDs from defined contribution (DC) plans, including
- The determination of RMDs related to annuity contracts
- The provisions stating that certain corrective distributions and distributions from designated Roth accounts are not taken into account for purposes of satisfying RMD requirements
- Certain details around allowing a surviving spouse to elect to use the Uniform Lifetime table in a DC plan
Situations when a divorce or separation instrument may be used in lieu of a qualified domestic relations order if a divorce occurs after purchasing certain qualifying longevity annuity contracts

No Change in Deadline

Listed below are some examples of the provisions that are still effective January 1, 2025:

Final regulations also published July 19, 2024:
- Excluding Roth in DC plans for the purposes of RMD during a participant’s lifetime
- Updates made to QLACs
- Change to the 25 percent excise penalty
- Timing rule under certain circumstances for each calendar year for the spouse beneficiary of an IRA to make an election on how to treat the deceased owner’s account.
Proposed regulations:
- The “applicable age” for RMD purposes for an individual born in 1959 is 73
- Applying RMD rules separately in a DC plan for beneficiaries of a see-through trust
- Updated Uniform Lifetime Table
- Eligible rollover distribution rules for designated Roth accounts and hypothetical RMDs
- Allowing a sole beneficiary spouse in a DC plan to be treated as the employee for purposes of determining the RMD

Next Steps in 2025

As outlined in the Announcement, “for periods before the applicability date of these amendments, taxpayers must apply a reasonable, good-faith interpretation of the statutory provisions underlying the amendments”.

The subject matter in this communication is educational only and provided with the understanding that Principal^® is not rendering legal, accounting, investment or tax advice. You should consult with appropriate counsel, financial professionals and other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.

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