On October 7, 2022, the Internal Revenue Service (IRS) published Notice 2022-531, to clear up confusion on some of the required minimum distributions (RMDs) guidance introduced in the 2019 SECURE Act.

Compliance Snapshot

  • Any RMDs made during 2020 or 2021 to beneficiaries of “impacted participants” (those who died after December 31, 2019, and died on or after their required beginning date) do not have to be corrected. Note, the “required beginning date” is the date on which you must start receiving RMDs from your 401k plan.
  • The IRS will not issue any compliance notices or tax penalties related to these specific RMD distributions.

Background: SECURE ACT RMD Changes

The 2019 SECURE Act was responsible for two primary changes to RMDs.

  • The SECURE Act changed the required beginning date for RMDs for 401k plan participants reaching age 70.5 in 2020 or later.
    • Example:
      • If a 401k plan participant reached age 70.5 in 2019, then the “old” rule applies. This means that they must take their first RMD no later than April 1, 2020.
      • If you reached age 70.5 in 2020 or later, then the “new” rule applies2. This means that they must take their first RMD no later than April 1 of the year after they turn 72.
  • Additionally, the SECURE Act limited the duration of RMDs to 401k plan beneficiaries to no more than ten years after death of the 401k plan participant (not ten years after the death of the 401k plan beneficiary). This new rule applied to most 401k plan participant deaths occurring after December 31, 2019.

However, in February 2022, the IRS issued additional RMD guidance, which was confusing to employers and 401k plan participants alike. The primary confusion entered around certain 401k plan participants who:

  • died after December 31, 2019, and
  • died on or after their required beginning date (the “impacted participants”).

For this group of 401k plan participants, the application and timing of RMDs was unclear. As such, many employers applied the SECURE Act RMD rules differently than what the IRS intended.

Updates: The IRS’s New RMD Guidance

Under the new RMD guidance, the IRS announced that it would be issuing new RMD rules, better explaining an employer’s responsibility when annually distributing RMDs. However, these new rules will not be effective before January 1, 2023, giving employers comfort close to year end.

Additionally, the IRS notes that if any RMDs were distributed to the beneficiaries of impacted participants during 2021 and 2022, and if these distributions were made contrary to the way the IRS intended, there will be no operational error or penalty tax. Additionally, if an employer has already paid a penalty tax, they can apply for a refund from the IRS.

Unfortunately, no guidance as of yet has been provided on how to apply for this refund. Hopefully, future guidance will clarify this process.

What Employers Should Expect Next

Employers with 401k plans can rest assured that any RMDs made during 2020 or 2021 to beneficiaries of impacted participants do not have to be corrected. Further, the IRS will not issue any compliance notices or tax penalties related to these specific RMD distributions.

However, the IRS has hinted that additional RMD guidance will be issued in 2023, though they have not published a specific date for the release. The 401k plan community is hopeful that the IRS will release these rules in early 2023, as it can be frustrating for those employers who want to get their internal systems set up for 2023 RMD distributions. Please continue to follow our blog for updates on this topic.

Additional Resources

  1. Internal Revenue Service. Notice 2022-53 (2022). https://www.irs.gov/pub/irs-drop/n-22-53.pdf
  2. Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs. September 23, 2022. https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions#:~:text=The%20Secure%20Act%20made%20major,year%20after%20you%20reach%2072.
  3. Internal Revenue Service. Notice 2022-53 (2022). https://www.irs.gov/pub/irs-drop/n-22-53.pdf
  4. Congress.gov (2019, June 3). H.R. 1994, 116th Congress, 1st Session. https://www.congress.gov/bill/116th-congress/house-bill/1994/text

Pensionmark Financial Group, LLC (“Pensionmark”) is an investment adviser registered under the Investment Advisers Act of 1940. Pensionmark is affiliated through common ownership with Pensionmark Securities, LLC (member SIPC).

DISCLAIMER: This communication is intended for information purposes only and should not be construed as legal or tax advice. It provides general information and is not intended to encompass all compliance and legal obligations that may be applicable to your situation. This information and any questions as to your specific circumstances should be reviewed with legal counsel and/or a tax professional.  

Jenny Kiesewetter — Jenny is a Retirement Plan Compliance Consultant for Sequoia, where she works with our clients to optimize and streamline retirement plan compliance. In her free time, Jenny enjoys spending time with her friends and family, traveling, live music, and dining out.