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IRS Issues Proposed Regs on Required Minimum Distributions from Retirement Plans

(Parker Tax Publishing March 2022)

The IRS issued proposed regulations 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 regulations, which are generally proposed to apply for calendar years beginning on or after January 1, 2022, reflect amendments made by the Setting Every Community Up for Retirement Enhancement Act of 2019, enacted as part of the Further Consolidated Appropriations Act of 2019 (Pub. L. 116-94). REG-105954-20.


Code Sec. 401(a)(9) provides rules for distributions from a qualified plan under Code Sec. 401(a) during the life of the employee and after the employee's death. The rules set forth a required beginning date for distributions and identify the period over which the employee's entire interest must be distributed. The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), enacted as part of the Further Consolidated Appropriations Act of 2019 (Pub. L. 116-94), amended the rules Code Sec. 401(a)(9) for determining required minimum distributions.

Code Sec. 401(a)(9)(A)(ii) provides that the entire interest of an employee in a qualified plan must be distributed, beginning not later than the employee's required beginning date, over the life of the employee or over the lives of the employee and a designated beneficiary (or over a period not extending beyond the life expectancy of the employee and a designated beneficiary). If an employee dies after distributions have begun, Code Sec. 401(a)(9)(B)(i) provides that the employee's remaining interest must be distributed at least as rapidly as under the distribution method used by the employee as of the date of his or her death. Under Code Sec. 401(a)(9)(B)(ii) and (iii), if an employee dies before required minimum distributions have begun, his or her interest must either be: (1) distributed (in accordance with regulations) over the life or life expectancy of the designated beneficiary with the distributions generally beginning no later than one year after the date of the employee's death; or (2) distributed within five years after the death of the employee. However, under Code Sec. 401(a)(9)(B)(iv), a surviving spouse may wait until the date the employee would have attained age 72 to begin taking required minimum distributions.

Under Code Sec. 401(a)(9)(C), as amended by Section 114 of the SECURE Act, the required beginning date for an employee is generally April 1 of the year following the later of the calendar year in which the employee attains age 72 or the year in which the employee retires. Before amendment, the relevant age for determining the required beginning date was age 70 1/2. The increase to age 72 applies to distributions required to be made after December 31, 2019, with respect to individuals who attain age 70 1/2 after that date.

Code Sec. 401(a)(9)I(i) defines the term "designated beneficiary" as any individual designated as a beneficiary by the employee. Code Sec. 401(a)(9)(E)(ii) (which was added by the SECURE Act) defines the term "eligible designated beneficiary" as any designated beneficiary who, as of the date of the employee's death, is: (1) the surviving spouse of the employee; (2) a child of the employee who has not reached the age of majority (within the meaning of Code Sec. 401(a)(9)(F)); (3) disabled (within the meaning of Code Sec. 72(m)(7)); (4) a chronically ill individual; or (5) an individual who is not more than 10 years younger than the employee. Code Sec. 401(a)(9)(E)(iii) provides that the treatment of an employee's child as an eligible designated beneficiary generally ends when the child attains the age of majority, and any remaining interest must be distributed within 10 years of that date.

Code Sec. 401(a)(9)(H) (added by Section 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. 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): (1) is applied by substituting 10 years for 5 years; and (2) applies whether or not distributions of the employee's interest have begun. 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. Under Code Sec. 401(a)(9)(H)(iii), 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 Regulations

On February 24, the IRS published proposed regulations (REG-105954-20) that update several existing regulations under Code Secs. 401(a)(9), 402(c), 403(b), 457, and 4974 to reflect statutory amendments (including SECURE Act amendments) that have been made since those regulations were last issued. The proposed regulations also replace the question-and-answer format of the existing regulations under Code Secs. 401(a)(9), 402(c), 408, and 4974 with a standard format.

Regarding the amended definition of the required beginning date in Code Sec. 401(a)(9)(C), which applies with respect to employees who attain age 70 1/2 on or after January 1, 2020, the IRS noted that the effective date could be interpreted to require the employee to survive until age 70 1/2 in order to have the amended definition apply. In other words, if the employee died before attaining age 70 1/2, then the amended definition would not apply with respect to distributions to that employee's beneficiary, even if the employee would have attained age 70 1/2 on or after January 1, 2020, had the employee survived. Instead, for ease of administration, the proposed regulations interpret the effective date language to apply the amendments made by the SECURE Act to an employee who died before attaining age 70 1/2 if the employee would have attained age 70 1/2 on or after January 1, 2020 (that is, the employee's date of birth is on or after July 1, 1949). This interpretation also extends to a surviving spouse who is waiting to begin distributions under Code Sec. 401(a)(9)(B)(iv).

Example: Joe was born on June 1, 1952, and died in 2018. Joe's sole beneficiary is his surviving spouse, Alice. Alice may wait until 2024 (the calendar year in which Joe would have attained age 72) to begin receiving distributions.

Regarding the definition of the term "age of majority" for purposes of Code Sec. 401(a)(9)(E)(ii)(II) and (F), the proposed regulations provide that a child of the employee reaches the age of majority on that child's 21st birthday. The IRS noted that this definition accommodates the age of majority definition in all of the states. Explaining the need to revise this definition, the IRS said that as more plans are expected to apply an age of majority definition, plans may find it difficult to implement the existing standard, under which the plan administrator must obtain information about the education of an employee's child for purposes of applying Code Sec. 401(a)(9)(H).

The proposed regulations also provide rules for the determination of whether an individual is disabled for purposes of Code Sec. 401(a)(9). The IRS explained that the standard of disability under Code Sec. 72(m)(7), which is based on whether an individual is unable to engage in substantial gainful activity, may be difficult to apply for individuals under age 18. Accordingly, the proposed regulations provide that if, as of the date of the employee's death, a beneficiary is younger than age 18, the standard for disability is whether the beneficiary has a medically determinable physical or mental impairment that results in marked and severe functional limitations, and that can be expected to result in death or to be of long-continued and indefinite duration. The proposed regulations provide a safe harbor for the determination of whether a beneficiary is disabled. Specifically, if, as of the date of the employee's death, the Commissioner of Social Security has determined that the individual is disabled within the meaning of 42 U.S.C. Section 1382c(a)(3), then that individual will be deemed to be disabled for purposes of Code Sec. 401(a)(9). Under Code Sec. 401(a)(9)(E)(ii), the determination of whether a beneficiary is disabled is made as of the date of the employee's death.

Example: As of Joe's death, his designated beneficiary is his 10-year-old child, who is not disabled but who becomes disabled 5 years after Joe's death. Under Code Sec. 401(a)(9)(E)(iii) and the proposed regulations, the child's later disability will not be taken into account, and the child will cease to be an eligible designated beneficiary on the child's 21st birthday.

Regarding the treatment of trusts as beneficiaries, the proposed regulations retain the see-through trust concept in the existing regulations under which certain beneficiaries of a trust are treated as beneficiaries of the employee if the trust meets the requirements to be a see-through trust. However, in response to issues raised in private letter ruling requests and comments submitted by practitioners, the proposed regulations provide extensive additional guidance in determining which beneficiaries of the see-through trust are treated as beneficiaries of the employee.

Effective Date

Generally, these regulations are proposed to apply for purposes of determining required minimum distributions for calendar years beginning on or after January 1, 2022. Prop. Reg. Sec. 1.402(c)-2 (relating to amounts that are not treated as eligible rollover distributions) is proposed to apply for distributions on or after January 1, 2022. The IRS states that, for the 2021 distribution calendar year, taxpayers must apply the existing regulations, but taking into account a reasonable, good faith interpretation of the amendments made by Sections 114 and 401 of the SECURE Act. According to the IRS, compliance with these proposed regulations will satisfy that requirement.

For a discussion of required distributions from qualified plans, see Parker Tax ¶131,505.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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