Blog post

Key Points

• The age for Required Minimum Distributions (RMDs) has been raised to 73, starting in 2023.
• Failure to take an RMD by the deadline may result in a 25% penalty on the amount not withdrawn.
• Roth IRAs are exempt from RMDs during the owner’s lifetime, offering tax advantages for retirement planning.
• The new rules offer more flexibility for those planning to delay retirement distributions.
• Consulting with a financial advisor can help ensure compliance and optimize your retirement strategy under the new RMD rules.

If you need help in reviewing your cross-border tax or investment situation, please feel free to reach out to us here. We look forward to speaking to you soon.

Treasury Department Issues Final Regulations on RMD Rules

On July 18, 2024, the Department of the Treasury and the Internal Revenue Service (IRS) issued final regulations updating the required minimum distribution (RMD) rules. These updates reflect the changes introduced by the SECURE Act and the SECURE 2.0 Act, affecting retirement plan participants, IRA owners, and their beneficiaries. Alongside these final regulations, the Treasury and IRS also issued proposed regulations addressing additional RMD issues under the SECURE 2.0 Act.

Background and Context

The SECURE Act, passed in 2019, and the SECURE 2.0 Act, passed in 2022, introduced significant changes to retirement savings and distributions, aiming to enhance retirement security for Americans. These acts adjusted the starting age for RMDs, changed rules regarding beneficiaries, and introduced new provisions for qualified longevity annuity contracts (QLACs), among other modifications.

The final regulations issued in 2024 build upon the proposed regulations from 2022, incorporating feedback and making necessary adjustments to align with the legislative changes. The purpose is to ensure that the distribution of retirement benefits remains fair and consistent with the updated legal framework.

Key Provisions of the Final Regulations

1. Annual Distributions for Beneficiaries:
   • Beneficiaries of individuals who had begun taking required annual distributions must continue to receive these annual payments. This provision remains consistent with the proposed regulations despite public comments suggesting otherwise.
2. 10-Year Distribution Rule:
   • If the remaining account balance is fully distributed within 10 years of the original account holder’s death, the beneficiary must still continue receiving annual payments during this period.
3. Solicitation of Public Comments:
   • The new proposed regulations include provisions for which Treasury and IRS are soliciting public comments, particularly those addressing other changes relating to RMDs made by the SECURE 2.0 Act.

What You Need to Know

Effective Dates:

• The regulations are effective as of September 17, 2024.
• Amended sections apply for determining required minimum distributions for calendar years beginning on or after January 1, 2025.

Important Changes:

• RMD Age Adjustments: The required beginning date for RMDs has been adjusted to align with the new age requirements set by the SECURE 2.0 Act.
• Beneficiary Rules: Beneficiaries must continue annual distributions if the original account holder had begun them, even if the account balance is distributed within 10 years.
• Qualified Longevity Annuity Contracts (QLACs): Changes include eliminating the 25% account balance premium limit and increasing the dollar limit to $200,000.

Public Comment Solicitation:

• Stakeholders are encouraged to review the proposed regulations and submit comments on provisions related to the SECURE 2.0 Act, ensuring a comprehensive regulatory framework.

Impact on Retirement Planning:

• These regulations impact administrators and participants of retirement plans, owners of individual retirement accounts and annuities, and beneficiaries. Understanding these changes is crucial for effective retirement planning and compliance.

If you have questions on how your IRA or inherited IRA will be affected by these changes, please reach out to discuss these matters with our cross-border investment team here. We look forward to chatting soon.