~ Author – Nathan Musser, CPA , Deluzio & Company Tax Manager ~
The IRS recently announced a few changes that will provide some relief to retirees, and those who are about to retire, regarding Required Minimum Distributions (RMDs). RMDs are the minimum amounts that a retirement plan account owner must withdraw annually starting with the year that he or she reaches a certain age.
This new announcement, known as Notice 2023-54, is a result of the SECURE 2.0 Act of 2022.
Previously, retirees had to start taking RMDs from their retirement accounts by April 1 of the year after they turned 72. The new rule bumps that age up to 73 or 75, depending on your birth date. This means if you’re turning 72 in 2023, you don’t have to take an RMD this year.
The IRS understands that these changes may have caused some confusion, especially since automated payment systems may not have been updated quickly enough. If a retiree or plan participant received a distribution in 2023, it may have been mistakenly categorized as an RMD, which would make it ineligible for rollover. A rollover is when you receive a payment from your retirement plan and contribute it to another retirement plan or IRA within 60 days.
Here’s the good news: the IRS is providing relief for these types of mistakes. They are extending the rollover period for these mischaracterized distributions to September 30, 2023. So, if you received a payment in 2023 that was incorrectly identified as an RMD, you now have until September 30 to roll it over to another account. However, it’s crucial to note that this rollover is not the same as a deductible IRA contribution, and it won’t count towards your contribution limit. Also, remember that if you choose to do this, you will not be able to roll over another distribution within the next twelve months.
Additionally, the IRS has confirmed that if you were supposed to start taking RMDs this year under the old rules but haven’t due to the new changes, you won’t be penalized. This also applies to beneficiaries under the “10-year rule” who, under old regulations, would have been required to start taking annual RMDs the year after the original account owner’s death. These beneficiaries can avoid taking an RMD in 2023 without any penalties.
To sum up, these changes offer a bit more flexibility and breathing room to retirees and their beneficiaries when it comes to managing their retirement accounts and distributions. Remember to keep these changes in mind when planning your retirement distributions, and as always, consider consulting with a tax or financial advisor to understand how these changes could impact your personal financial situation.