Required Minimum Distributions+

DEPARTMENT OF THE TREASURY <SUBAGY>Internal Revenue Service</SUBAGY> <CFR>26 CFR Part 1</CFR> <DEPDOC>[REG-103529-23]</DEPDOC> <RIN>RIN 1545-BQ66</RIN> <SUBJECT>Required Minimum Distributions+</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Internal Revenue Service (IRS), Treasury. <HD SOURCE="HED">ACTION:</HD> Notice of proposed rulemaking and notice of public hearing. <SUM> <HD SOURCE="HED">SUMMARY:</HD> This document sets forth proposed regulations that would provide guidance relating to required minimum distributions from qualified plans; section 403(b) annuity contracts, custodial accounts, and retirement income accounts; individual retirement accounts and annuities; and eligible deferred compensation plans under section 457. These proposed regulations would affect administrators of, and participants in, those plans; owners of individual retirement accounts and annuities; employees for whom amounts are contributed to section 403(b) annuity contracts, custodial accounts, or retirement income accounts; and beneficiaries of those plans, contracts, accounts, and annuities. This document also provides notice of a public hearing. </SUM> <DATES> <HD SOURCE="HED">DATES:</HD> Written or electronic comments must be received by September 17, 2024. A public hearing on this proposed regulation has been scheduled for September 25, 2024, at 10:00 a.m. ET. Requests to speak and outlines of topics to be discussed at the public hearing must be received by September 17, 2024. If no outlines are received by September 17, 2024, the public hearing will be cancelled. </DATES> <HD SOURCE="HED">ADDRESSES:</HD> Commenters are strongly encouraged to submit public comments electronically via the Federal eRulemaking Portal at <E T="03">www.regulations.gov</E> (indicate IRS and REG-103529-23) by following the online instructions for submitting comments. Once submitted to the Federal eRulemaking Portal, comments cannot be edited or withdrawn. The Department of the Treasury (Treasury Department) and the IRS will publish for public availability any comment submitted electronically or on paper to its public docket on <E T="03">www.regulations.gov.</E> Send paper submissions to: CC:PA:01:PR (REG-103529-23), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044. <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Concerning the proposed regulations, call Brandon M. Ford or Jessica S. Weinberger at (202) 317-6700; concerning submission of comments, the hearing, and the access code to attend the hearing by telephone, call Vivian Hayes at (202) 317-6901 (not toll-free numbers) or email <E T="03">publichearings@irs.gov</E> (preferred). </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Background</HD> This document sets forth proposed amendments to the Income Tax Regulations (26 CFR part 1) under section 401(a)(9) of the Internal Revenue Code of 1986 (Code). Section 401(a)(9) sets forth required minimum distribution rules for plans qualified under section 401(a). These rules are incorporated by reference in section 408(a)(6) and (b)(3) for individual retirement accounts and individual retirement annuities (collectively, IRAs); section 403(b)(10) for annuity contracts, custodial accounts, and retirement income accounts described in section 403(b) (section 403(b) plans); and section 457(d)(2) for eligible deferred compensation plans. The determination of the required minimum distribution is also relevant for purposes of the related excise tax under section 4974 and the definition of eligible rollover distribution in section 402(c). The Rules and Regulations section of this issue of the <E T="04">Federal Register</E> includes final regulations that amend the Income Tax Regulations and Excise Tax Regulations (26 CFR parts 1 and 54) relating to sections 401(a)(9), 402(c), 403(b), 408, 457, and 4974 (T.D. 10001). The background section in the preamble to those final regulations (2024 final regulations) describes those provisions. <HD SOURCE="HD1">Explanation of Provisions</HD> <HD SOURCE="HD2">A. Overview</HD> These proposed regulations would address various provisions that were reserved in the 2024 final regulations. These proposed regulations address sections 107, 202, 204, 302, 325, and 327 of the SECURE 2.0 Act of 2022 (SECURE 2.0 Act), enacted on December 29, 2022, as Division T of the Consolidated Appropriations Act, 2023, Public Law 117-328, 136 Stat. 4459 (2022), and certain other issues. <HD SOURCE="HD2">B. Determination of Applicable Age for Employees Born in 1959</HD> The 2024 final regulations include rules for determining an employee's applicable age, as defined in section 401(a)(9)(C)(v), which is a component of the determination of the employee's required beginning date. Under those rules, which reflect the amendment to section 401(a)(9)(C) made by section 107 of the SECURE 2.0 Act, an employee's applicable age varies based on the employee's date of birth. However, as noted in the preamble to the 2024 final regulations, employees who were born in 1959 are described in section 401(a)(9)(C)(v)(I) of the Code (which provides that the applicable age for those employees is age 73) as well as section 401(a)(9)(C)(v)(II) (which provides that the applicable age for those employees is age 75). The 2024 final regulations reserve § 1.401(a)(9)-2(b)(2)(v) for the determination of the applicable age for employees born in 1959, and these proposed regulations would fill in the reserved paragraph. Under the proposed regulations, the applicable age for an employee who was born in 1959 would be age 73. <HD SOURCE="HD2">C. Purchase of Annuity Contract With Portion of Employee's Individual Account—Rules of Operation for Aggregation Option</HD> The 2024 final regulations include guidance issued pursuant to section 204 of the SECURE 2.0 Act (relating to the application of section 401(a)(9) of the Code in a situation in which an employee's interest in a defined contribution plan is partially annuitized by using a portion of the employee's individual account to purchase an annuity contract). Specifically, § 1.401(a)(9)-5(a)(5)(iv) provides that, in lieu of satisfying section 401(a)(9) separately with respect to an annuity contract purchased with a portion of the employee's account and the remaining account balance, a plan may permit an employee to elect to satisfy section 401(a)(9) for the annuity contract and that account balance in the aggregate by adding the fair market value of the contract to the remaining account balance and treating payments under the annuity contract as distributions from the employee's individual account. However, the 2024 final regulations reserve § 1.401(a)(9)-5(a)(5)(v) for rules of operation with respect to this aggregation option, and these proposed regulations would fill in the reserved paragraph. Under proposed § 1.401(a)(9)-5(a)(5)(v), the fair market value of the annuity contract would be determined as of December 31 of the calendar year preceding the distribution calendar year. In addition, beginning with the determination used for the 2026 distribution calendar year, the determination would have to be made using the applicable method set forth in § 1.408A-4, Q&A-14(b)(2). <SU>1</SU> <FTREF/> <FTNT> <SU>1</SU>  Section 1.408A-4, Q&A-14(b)(2) sets forth rules for determining the fair market value of a traditional IRA that is an individual retirement annuity if that IRA is converted to a Roth IRA. </FTNT> <HD SOURCE="HD2">D. Distributions From Designated Roth Accounts</HD> Section 325 of the SECURE 2.0 Act added a new paragraph (5) to section 402A(d) of the Code, which provides that the provisions of section 401(a)(9)(A) (requiring that minimum distributions be paid during an employee's lifetime) and the incidental death benefit requirements of section 401(a) do not apply to any designated Roth account. The 2024 final regulations include limited guidance relating to the application of that new paragraph. Specifically, in the case of an employee for whom only a portion of the employee's account under a defined contribution plan is held in a designated Roth account described in section 402A(b)(2), § 1.401(a)(9)-5(b)(3) of the 2024 final regulations provides that, for distribution calendar years up to and including the calendar year that includes the employee's date of death, amounts held in that designated Roth account are not taken into account for purposes of determining the account balance that is used to calculate the required minimum distribution. However, the 2024 final regulations reserve § 1.401(a)(9)-5(g)(2)(iii) for rules regarding how distributions from a designated Roth account are treated for purposes of section 401(a)(9), and these proposed regulations fill in the reserved paragraph. Under proposed § 1.401(a)(9)-5(g)(2)(iii), a distribution from a designated Roth account made in a calendar year for which the employee is required to take a minimum distribution under the plan would not count towards satisfying that requirement. Consistent with this rule, the proposed regulations would provide that such a distribution is not treated as a required minimum distribution for purposes of § 1.402(c)-2(f). Thus, the distribution could be rolled over to a Roth IRA if it otherwise meets the requirements to be an eligible rollover distribution. <HD SOURCE="HD2">E. Corrective Distributions Giving Rise to Reduction or Waiver of the Section 4974 Excise Tax</HD> The 2024 final regulations include guidance relating to the application of section 4974(e) (as added to the Code by section 302(b) of the SECURE 2.0 Act). Specifically, § 54.4974-1(a)(2) provides that, in the case of a taxpayer who doesn't receive the full required minimum distribution under any qualified retirement plan (as defined in section 4974(c) of the Code) or any eligibl ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 68k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━