The IRS has issued proposed regs relating to required minimum distributions from qualified plans; Code Sec. 403(b) annuity contracts, custodial accounts, and retirement income accounts; individual retirement accounts and annuities; and eligible deferred compensation plans under Code Sec. 457.
The proposed regs update existing regs to reflect the amendments made to Code Sec. 401(a)(9) by Secs. 114 and 401 of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act, signed into law as part of Division O of the Further Consolidated Appropriations Act of 2019, PL 116-94).
Background.
Code Sec. 401(a)(9)(C) (as amended by Sec. 114 of the SECURE Act) defines the required beginning date for an employee (other than a 5% owner or IRA owner) as April 1 of the calendar year following the later of the calendar year in which the employee attains age 72 or the calendar year in which the employee retires. For a 5% owner or an IRA owner, the required beginning date is April 1 of the calendar year following the calendar year in which the individual attains age 72, even if the individual has not retired. Code Sec. 401(a)(9)(C)(iii) provides that certain employees who commence benefits under a defined benefit plan after the year in which they attain age 70½ must receive an actuarial increase.
Code Sec. 401(a)(9)(H) (added as part of Sec. 401 of the SECURE Act) provides special rules that generally apply to the distribution of an employee’s remaining interest in a defined contribution plan after the death of that employee. Specifically, Code Sec. 401(a)(9)(H)(i) provides that, except in the case of a beneficiary who is not a designated beneficiary, Code Sec. 401(a)(9)(B)(ii):
- Is applied by substituting 10 years for 5 years; and
- Applies whether or not distributions of the employee’s interest have begun in accordance with Code Sec. 401(a)(9)(A). Code Sec. 401(a)(9)(H)(ii) provides that Code Sec. 401(a)(9)(B)(iii) (permitting payments over the life or life expectancy of the designated beneficiary as an alternative to the 10-year rule) applies only in the case of an eligible designated beneficiary.
Code Sec. 401(a)(9)(H)(iii) provides that if an eligible designated beneficiary dies before the employee’s interest is entirely distributed, then Code Sec. 401(a)(9)(H)(ii) does not apply to the beneficiary of the eligible designated beneficiary, and the remainder of the employee’s interest must be distributed within 10 years after the death of the eligible designated beneficiary.
Proposed regs.
Among other things, the proposed regs address the actuarial increase required under Code Sec. 401(a)(9)(C)(iii). Specifically, the proposed regs reflect that the required actuarial increase under does not apply to a 5% owner.
In addition, the proposed regs provide that if an employee in a plan who dies before the Code Sec. 401(a)(9)(H) effective date for that plan has more than one designated beneficiary, whether the amendments under the SECURE Act’s Sec. 401 apply depends on when the oldest of those beneficiaries dies.
The proposed regs also provide that in the case of a defined contribution plan, if the employee has a designated beneficiary who is an eligible designated beneficiary, the plan may provide either that the 10-year rule applies or that the life expectancy payments rule applies. Alternatively, the plan may provide the employee or the eligible designated beneficiary an election between the 10-year rule or the life expectancy payments rule. However, if a defined contribution plan does not include either of those optional provisions and the employee has an eligible designated beneficiary, the plan must provide for the life expectancy payments rule.
To continue your research on required beginning date for required minimum distributions, see FTC 2d/FIN ¶H-8276.1. For post-death distributions to non-spouse beneficiaries under the required minimum distribution rules, see FTC 2d/FIN ¶H-8279.9.
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