IRS Provides Guidance on Required Minimum Distributions for 2023

Transcript of Podcast Episode 223

Hello this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute. In today’s episode, IRS provides guidance on required minimum distributions for 2023.

By now, many of you have probably heard of the new law commonly known as SECURE 2.0. This law significantly impacts retirement planning for individuals. SECURE 2.0 was part of the Consolidated Appropriations Act 2023, which was signed into law on December 29, 2022. It builds upon the original SECURE Act or Setting Every Community Up for Retirement Enhancement Act of 2019 that was signed into law at the end of 2019. Notably, the original SECURE Act raised the age in which individuals generally needed to take required minimum distributions (“RMDs”) from IRAs and qualified retirement plans from age 70 1/2  to 72. SECURE 2.0 goes further and raises the age to 73 commencing in 2023, and eventually to age 75 commencing in 2033.

Given that SECURE 2.0 was enacted at the end of 2022 with effective dates a few days later, there was a great deal of confusion because individuals turning age 72 in 2023 were preparing to begin RMDs required by the original SECURE Act. SECURE 2.0 changed that so only those turning 73 in 2023 need to commence RMDs.

Financial institutions are generally required to file Form 5498 and indicate in Box 11 that an RMD is required for the year. The financial institution must also furnish a statement to the IRA owner that informs the IRA owner of the date by which the RMD must be distributed. But given the rapidness of the effective date of SECURE 2.0, the recordkeeping systems of many financial institutions could not be updated quickly enough. Individuals who turned 72 in 2023, may have already received a letter from their financial institution indicating the need for an RMD this year. On March 7, 2023, the IRS issued Notice 2023-23 which, in essence, indicated that the IRS will ignore that letter provided that the IRA owner is notified by the financial institution no later than April 28, 2023, that no RMD is actually required for 2023.

So, if you turn age 72 in 2023, you are not required to commence RMDs in 2023. However, if you turn age 73 in 2023, you are required to commence RMDs in 2023. Note, however, that if you attained age 72 prior to January 1, 2023, you are still required to commence taking RMDs.

Yes, it is all pretty confusing! The IRS is encouraging all financial institutions to remind IRA owners who attained age 72 in 2022, and have not yet taken their 2022 RMDs, that they are still required to take those distributions by April 1, 2023.

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