In what appears to address changes under the SECURE 2.0 Act, the IRS has issued updated information for reporting concerning IRAs, as well as a fresh reminder concerning required minimum distributions (RMDs).
The IRS has issued an updated version of Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs). The new version is for use in reporting on 2022 tax returns.
The IRS has made a variety of changes to the form for 2022 reporting.
Disaster tax relief. The special rules that provide for tax-favored withdrawals and repayments now apply to disasters that occur on or after Jan. 26, 2021.
Excise tax relief for certain 2022 required minimum distributions. The IRS will not assert an excise tax in 2022 for missed RMDs if certain requirements are met. See Notice 2022-53.
RMDs. Individuals who reach age 72 after Dec. 31, 2022, may delay receiving their RMDs until April 1 of the year following that in which they turn age 73.
Qualified charitable distribution one-time election. Beginning in tax years after Dec. 30, 2022, one can elect to make a one-time distribution of up to $50,000 from an IRA to charities through a charitable remainder trust, a charitable remainder unitrust, or a charitable gift annuity funded only by qualified charitable distributions. Also, for tax years beginning after 2023, this $50,000 one-time election amount and the $100,000 annual IRA charitable distribution limit will be adjusted for inflation.
Certain corrective distributions not subject to 10% early distribution tax. Beginning with distributions made on Dec. 29, 2022 and after, the 10% additional tax on early distributions will not apply to a corrective IRA distribution, which consists of (1) an excessive contribution (a contribution greater than the IRA contribution limit) and (2) any earnings (the portion of the distribution subject to the 10% additional tax) allocable to the excessive contribution — as long as the corrective distribution is made on or before the due date (including extensions) of the income tax return.
Substantially equal payments clarified. Distributions received as periodic payments on or after Dec. 29, 2022, will not fail to be treated as substantially equal merely because they are received as an annuity.
Excise tax rate for excess accumulations reduced. The excise tax rate for distributions that are less the RMD amount (excess accumulations) is reduced to 25% for tax years beginning in 2023 and after.
It may be possible to take a reduced excise tax rate of 10% of the amount not distributed, if, during the correction window, a distribution is taken of the amount on which the tax is due and submit a tax return reflecting this excise tax.
The “correction window” is the period beginning on the date on which the excise tax is imposed on the distribution shortfall and ends on the earliest of the following dates:
- the date of mailing the deficiency notice regarding the imposition of this tax; or
- the date the tax is assessed; or
- the last day of the second taxable year that begins after the date of the taxable year in which the excise tax is imposed.
Distributions to terminally ill individuals. The exception to the 10% additional tax for early distributions is expanded to apply to distributions made to terminally ill individuals on or after Dec. 30, 2022.
Tax treatment of IRA involved in a prohibited transaction. Beginning in 2023, if an IRA owner or beneficiary engages in a prohibited transaction regarding one of their multiple IRAs, only the IRA used in the prohibited transaction is disqualified and treated as distributed to the owner or beneficiary.
RMD Deadlines, Revisited
To satisfy the required minimum distribution (RMD) requirements in a retirement plan, one must take RMDs separately from each of one’s retirement plans, the IRS reminds in the March 22, 2023 issue of Employee Plans News. It also discusses deadlines based on ages at certain dates.
RMD basics. RMDs are minimum amounts that must be withdrawn from an IRA or retirement plan account when one reaches age 72. Beginning in 2023, under SECURE 2.0, the age at which RMDs must begin changes to age 73 for taxpayers who reach age 72 after Dec. 31, 2022.
Roth IRAs. The rules for Roth IRAs are different, the IRS observes — they are not subject to RMDs until after the death of the original account owner. Designated Roth accounts in a 401(k) or 403(b) plan are subject to the RMD rules for 2022 and 2023. However, for 2024 and later years, RMDs are no longer required from designated Roth accounts.
RMDs from an IRA. The RMD requirement can be satisfied by taking a withdrawal from one or more traditional IRAs, or SEP, SIMPLE and SARSEP IRAs. It is not necessary to take a withdrawal from each of your IRAs, the IRS reminds, but total withdrawals must be at least equal to the total RMD due from all IRAs in the aggregate.
IRA RMDs by Age. The dates by which RMDs from IRAs must take place, based on when one reaches certain ages, are as follows:
Reach age 72 in 2022: The first RMD from an IRA is due by April 1, 2023, based on Dec. 31, 2021, account balance. The second RMD is due by Dec. 31, 2023, based on the Dec. 31, 2022, account balance.
Reach age 72 in 2023: If one reaches age 72 in 2023, one does not have an RMD requirement for 2023. The first RMD is for 2024, the year one reaches age 73, and is due by April 1, 2025.
Reach age 73 in 2023: If one attains age 73 in 2023, one therefore was age 72 in 2022 — and one must take the first RMD for 2022 by April 1, 2023, based on the Dec. 31, 2021, account balance.
RMDs from a retirement plan. If one reaches age 72 in 2022, the first RMD for 2022 is due by April 1, 2023, based on the Dec. 31, 2021, account balance. The 2023 RMD is due by Dec. 31, 2023, based on the Dec. 31, 2022 account balance.
Those still employed. One who is still employed by the plan sponsor, and is not a 5% owner, the plan may allow one to delay taking RMDs from that workplace retirement plan until retirement. And the rules for timing of RMDs still apply, even if one is employed.
Finding Out More
Publication 590, Distributions from Individual Retirement Arrangements (IRAs), is available here: https://www.irs.gov/pub/irs-pdf/p590b.pdf
Notice 2022-35 is available here: https://www.irs.gov/pub/irs-drop/n-22-53.pdf
Information about the April 1 RMD deadline is available here: https://www.asppa.org/news/april-1-rmd-deadline-looms-some
Information about SECURE 2.0 is available here:
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