IRS Provides Relief on Certain RMDs
The IRS issued notice 2023-54 on Friday July 14 regarding relief for certain required minimum distributions that occurred in 2023 and also provides relief for certain penalties.
The IRS issued notice 2023-54 on Friday July 14. This notice provides relief to farmers who are born in 1951 and mistakenly took a distribution from an IRA or pension plan thinking it was a required minimum distribution (RMD).
Under the Secure Act, farmers who turned age 72 were required to start taking a distribution no later than April 1 of the year after they turned age 72. Secure 2.0 passed in December 2022 increased this age to 73.
Some farmers born in 1951 thought they were required to take a distribution this year. However, since they are not yet age 73, no distribution is required.
The IRS is now extending the 60-day rollover period to September 30, 2023, for any of these distributions made between January 1, 2023, and July 31, 2023. This applies only to taxpayers born in 1951.
Example - Jennifer turns 72 on January 15, 2023. She assumed she needed to take out a $30,000 RMD during 2023. On June 1, 2023, she received a $30,000 distribution from her IRA. If she funds her IRA with a $30,000 contribution by September 30, 2023, no tax will be owed on the distribution. However, if she rolls this over after that date, she will owe tax and may also owe a penalty.
The IRS also issued relief to all other taxpayers who may have inherited an IRA or other retirement assets. Under the original Secure Act, any inherited IRA by a designated beneficiary had up to 10 years to fully cash in the IRA. If the deceased had not reached their required beginning date (RBD), then the person could wait up to 10 years after the person died to fully cash in the IRA. No distributions were required in years 1-9.
However, if the person had reached their RBD, then the IRS proposed regulations indicated a distribution must be made each year beginning in the year after death. However, most taxpayers and commentators assumed that the 10-year rule would be similar to the five-year rule which allows you to skip distributions until year 5/10.
The IRS is reviewing these comments and since they have not issued final regulations, they are indicating that no penalty will be owed for not taking a RMD from an inherited IRA in 2023. This only applies to inherited IRAs. If you have your own IRA and are over the RBD, you must take your normal distribution this year.
We assume that the IRS will issue final regulations sometime later this year but the rules until the final regulations will not apply until at least starting January 1, 2024.
This is good news, and we will keep you posted.