Changes Ahead: IRS Proposed Regulations on the SECURE Act

The IRS finally released long-awaited proposed regulations on the Setting Every Community Up for Retirement (SECURE) Act passed by Congress and signed into law more than 2 years ago.

Although these regulations are proposed and subject to change, they provide guidance and clarification on many of the new lifetime and post-death required minimum distribution (RMD) rules enacted by the SECURE Act. They also contain a few very important clarifications that were highly unexpected and may have a substantial impact as to when and how much RMD must be taken to avoid a steep 50% IRS tax penalty on failed RMDs. For many IRA beneficiaries, the SECURE Act and the proposed regulations will cause an increase in the RMD amount or an acceleration of RMDs.

The proposed regulations restate the lifetime RMD changes made under the SECURE Act. For traditional IRA owners who turn 70½ after December 31, 2019 (born after June 30, 1949), the mandatory RMD start date can be delayed to April 1 of the calendar year following the year the IRA owner turns 72.

For IRA owners who pass away after December 31, 2019, the ability to stretch out distributions over the life expectancy of the beneficiary, except for a limited set of beneficiaries referred to as eligible designated beneficiaries (EDBs) who are the IRA owner’s surviving spouse, disabled, chronically ill or not more than 10 years younger than the IRA owner, has been eliminated by the SECURE Act.

Beneficiaries are divided into three categories and would be subject to the following RMD rules:

Additional rules that would become effective under the proposed regulations:

The proposed RMD regulations greatly expand the direction and guidance needed on the SECURE Act and would be effective in 2022 and later years, unless amended.

River Wealth Advisors is monitoring changes to the SECURE Act. Although these proposed regulations can be changed before they are finalized, we are assessing how these RMD rules may impact planning strategies for our clients. We will continue to provide updates about the SECURE Act and other legislative changes in our quarterly webinars.

If you have questions about the possible impact of these proposed regulations to you, please contact your wealth advisor.

Source: Equitable