Rule2024-14542
Required Minimum Distributions
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
July 19, 2024
Effective
September 17, 2024
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document sets forth final regulations 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 certain eligible deferred compensation plans. These regulations 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.
Full Text
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<title>Federal Register, Volume 89 Issue 139 (Friday, July 19, 2024)</title>
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[Federal Register Volume 89, Number 139 (Friday, July 19, 2024)]
[Rules and Regulations]
[Pages 58886-58954]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-14542]
[[Page 58885]]
Vol. 89
Friday,
No. 139
July 19, 2024
Part II
Department of the Treasury
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Internal Revenue Service
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26 CFR Parts 1, 31, and 54
Required Minimum Distributions; Final Rule
Federal Register / Vol. 89 , No. 139 / Friday, July 19, 2024 / Rules
and Regulations
[[Page 58886]]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1, 31, and 54
[TD 10001]
RIN 1545-BP82
Required Minimum Distributions
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document sets forth final regulations 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 certain eligible
deferred compensation plans. These regulations 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.
DATES:
Effective date: These regulations are effective on September 17,
2024.
Applicability date: Amended Sec. Sec. 1.401(a)(9)-1 through
1.401(a)(9)-9, 1.403(b)-6(e), and 1.408-8 apply for purposes of
determining required minimum distributions for calendar years beginning
on or after January 1, 2025. Amended Sec. 1.402(c)-2 applies for
distributions on or after January 1, 2025. Amended Sec. 54.4974-1
applies for taxable years beginning on or after January 1, 2025.
FOR FURTHER INFORMATION CONTACT: Brandon M. Ford at (202) 317-6700 (not
a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document sets forth amendments to the Income Tax Regulations
(26 CFR part 1) under section 401(a)(9) of the Internal Revenue Code of
1986 (Code). These regulations address the required minimum
distribution requirements for plans qualified under section 401(a) and
update the regulations to reflect the amendments made to section
401(a)(9) by sections 114 and 401 of the Setting Every Community Up for
Retirement Enhancement Act of 2019 (SECURE Act), enacted on December
20, 2019, as Division O of the Further Consolidated Appropriations Act,
2020, Public Law 116-94, 133 Stat. 2534 (2019) and by various sections
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).
The rules of section 401(a)(9) are adopted 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). Accordingly, this
document also sets forth conforming amendments to the Income Tax
Regulations (26 CFR part 1) under sections 402(c), 403(b), 408, and
457, and to the Pension Excise Tax Regulations (26 CFR part 54) under
section 4974.
Section 401(a)(9)--Required Minimum Distributions
Section 401(a)(9) provides rules for distributions from a qualified
plan during the life of the employee in section 401(a)(9)(A) and after
the death of the employee in section 401(a)(9)(B). The rules set forth
a required beginning date for distributions and identify the period
over which the employee's entire interest must be distributed.
Specifically, section 401(a)(9)(A)(ii) provides that the entire
interest of an employee in a qualified plan must be distributed,
beginning not later than the employee's required beginning date, in
accordance with regulations, over the life of the employee or over the
lives of the employee and a designated beneficiary (or over a period
not extending beyond the life expectancy of the employee and a
designated beneficiary). Section 401(a)(9)(B)(i) provides that, if the
employee dies after distributions have begun, the employee's remaining
interest must be distributed at least as rapidly as under the
distribution method used by the employee as of the date of the
employee's death (referred to in this preamble as the ``at least as
rapidly'' rule).
Section 401(a)(9)(B)(ii) and (iii) provides that, if the employee
dies before required minimum distributions have begun, the employee's
interest must either be: (1) distributed within 5years after the death
of the employee; or (2) distributed (in accordance with regulations)
over the life or life expectancy of the designated beneficiary with the
distributions generally beginning not later than 1 year after the date
of the employee's death.
However, under section 401(a)(9)(B)(iv) (as amended by section 327
of the SECURE 2.0 Act), a surviving spouse may elect to: (1) be treated
as if the surviving spouse were the employee for purposes of section
401(a)(9)(B)(iii)(II); (2) wait until the date the employee would have
attained the applicable age (as defined in section 401(a)(9)(C)(v)) to
begin taking required minimum distributions; and (3) have the
beneficiaries of the surviving spouse be treated as beneficiaries of
the employee if the surviving spouse dies before distributions to the
spouse begin.
Section 401(a)(9)(C)(i) (as amended by section 114 of the SECURE
Act and further amended by section 107 of the SECURE 2.0 Act) defines
the required beginning date for an employee (other than a 5-percent
owner or IRA owner) as April 1 of the calendar year following the later
of the calendar year in which the employee attains the applicable age
or the calendar year in which the employee retires. Section
401(a)(9)(C)(v)(I) provides that in the case of an individual who
attains age 72 after December 31, 2022, and age 73 before January 1,
2033, the applicable age is 73. Section 401(a)(9)(C)(v)(II) provides
that in the case of an individual who attains age 74 after December 31,
2032, the applicable age is 75. For a 5-percent owner or an IRA owner,
the required beginning date is April 1 of the calendar year following
the calendar year in which the individual attains the applicable age,
even if the individual has not retired.
Section 401(a)(9)(C)(iii) provides that certain employees who
commence benefits under a defined benefit plan after the year in which
they attain age 70\1/2\ must receive an actuarial increase. However,
section 401(a)(9)(C)(iv) provides that the actuarial increase
requirement does not apply for a governmental plan or for a church plan
(as defined in section 401(a)(9)(C)(iv)).
Section 401(a)(9)(D) provides that (except in the case of a life
annuity) the life expectancy of an employee and the employee's spouse
(used to measure the period over which payments must be made) may be
redetermined, but not more frequently than annually.
Section 401(a)(9)(E)(i) defines the term designated beneficiary as
any individual designated as a beneficiary by the employee. Section
401(a)(9)(E)(ii) (which was added to the Code as part of section 401 of
the SECURE Act) defines the term eligible designated
[[Page 58887]]
beneficiary, with respect to any employee, as any designated
beneficiary who, as of the date of the employee's death, is: (1) the
surviving spouse of the employee; (2) a child of the employee who has
not reached the age of majority (within the meaning of section
401(a)(9)(F)); (3) disabled (within the meaning of section 72(m)(7));
(4) a chronically ill individual (within the meaning of section
7702B(c)(2), subject to certain exceptions); or (5) an individual not
described elsewhere in section 401(a)(9)(E)(ii) who is not more than 10
years younger than the employee.
Section 401(a)(9)(E)(iii) provides that, subject to the rule in
section 401(a)(9)(F), the treatment of an employee's child as an
eligible designated beneficiary ends when the child attains the age of
majority and that any remaining interest must be distributed within 10
years of that date. Section 401(a)(9)(F) provides that, under
regulations, any amount paid to a child is treated as if it had been
paid to the surviving spouse if it will become payable to the surviving
spouse upon that child reaching the age of majority (or other
designated event permitted under regulations).
Section 401(a)(9)(G) provides that any distribution required to
satisfy the incidental death benefit requirement of section 401(a) is
treated as a required minimum distribution.
Section 401(a)(9)(H) (which was added to the Code as part of
section 401 of the SECURE Act) provides special rules that generally
apply to the distribution of an employee's remaining interest in a
defined contribution plan after the death of that employee.
Specifically, section 401(a)(9)(H)(i) provides that, except in the case
of a beneficiary who is not a designated beneficiary, section
401(a)(9)(B)(ii): (1) is applied by substituting 10 years for 5 years;
and (2) applies whether or not distributions of the employee's interest
have begun in accordance with section 401(a)(9)(A). Section
401(a)(9)(H)(ii) provides that section 401(a)(9)(B)(iii) (permitting
payments over the life or life expectancy of the designated beneficiary
as an alternative to the 10-year rule) applies only in the case of an
eligible designated beneficiary. Section 401(a)(9)(H)(iii) provides
that if an eligible designated beneficiary dies before that
individual's portion of the employee's interest in the plan has been
entirely distributed, then section 401(a)(9)(H)(ii) does not apply to
the beneficiary of the eligible designated beneficiary, and the
remainder of that portion must be distributed within 10 years after the
death of the eligible designated beneficiary.
Section 401(a)(9)(H)(iv) provides that in the case of an applicable
multi-beneficiary trust, if, under the terms of the trust, it is to be
divided immediately upon the death of the employee into separate trusts
for each beneficiary, then section 401(a)(9)(H)(ii) is applied
separately with respect to the portion of the employee's interest that
is payable to any disabled or chronically ill eligible designated
beneficiary. Section 401(a)(9)(H)(iv) (as amended by section 337 of the
SECURE 2.0 Act) also provides that in the case of an applicable multi-
beneficiary trust, if, under the terms of the trust, no beneficiary
(other than an eligible designated beneficiary who is disabled or
chronically ill) has any right to the employee's interest in the plan
until the death of all of those disabled or chronically ill eligible
designated beneficiaries with respect to the trust, then: (1) section
401(a)(9)(B)(iii) (permitting payments over the life expectancy of a
beneficiary) will apply to the distribution of the employee's interest;
and (2) any beneficiary who is not disabled or chronically ill will be
treated as a beneficiary of the eligible designated beneficiary who is
disabled or chronically ill upon the death of that eligible designated
beneficiary.
Section 401(a)(9)(H)(v) (as amended by section 337 of the SECURE
2.0 Act) defines the term applicable multi-beneficiary trust as a
trust: (1) that has more than one beneficiary; (2) all of the
beneficiaries of which are treated as designated beneficiaries for
purposes of determining the distribution period pursuant to section
401(a)(9); and (3) at least one of the beneficiaries of which is an
eligible designated beneficiary who is either disabled or chronically
ill. Section 401(a)(9)(H)(v) also provides that, for purposes of that
definition, in the case of a trust described in section
401(a)(9)(H)(iv)(II), any beneficiary which is an organization
described in section 408(d)(8)(B)(i) is treated as a designated
beneficiary.
Section 401(a)(9)(H)(vi) provides that, for purposes of applying
section 401(a)(9)(H), an eligible retirement plan defined in section
402(c)(8)(B) (other than a defined benefit plan described in section
402(c)(8)(B)(iv) or (v) \1\ or a qualified trust that is a part of a
defined benefit plan) is treated as a defined contribution plan.
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\1\ The eligible retirement plans described in sections
402(c)(8)(B)(iv) and (v) are an annuity plan described in section
403(a) and an eligible deferred compensation plan described in
section 457(b) that is maintained by an eligible employer described
in section 457(e)(1)(A), respectively.
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Section 401(a)(9)(J) (which was added to the Code by section 201 of
the SECURE 2.0 Act) provides that a commercial annuity (within the
meaning of section 3405(e)(6)) that is issued in connection with any
eligible retirement plan (within the meaning of section 402(c)(8)(B),
other than a defined benefit plan) is not prohibited from making any of
the following types of payments: (1) annuity payments that increase by
a constant percentage, applied not less frequently than annually, at a
rate that is less than 5 percent per year; (2) certain lump sum
payments; \2\ (3) an amount which is in the nature of a dividend or
similar distribution, provided that the issuer of the contract
determines the amount using reasonable actuarial methods and
assumptions, as determined in good faith by the issuer of the contract,
when calculating the initial annuity payments and the issuer's
experience with respect to those factors; or (4) a final payment upon
death that does not exceed the excess of the total amount of the
consideration paid for the annuity payments, less the aggregate amount
of prior distributions or payments from or under the contract.
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\2\ Section 401(a)(9)(J)(ii) provides that the lump sum payment
must either: (1) result in a shortening of the payment period with
respect to an annuity or a full or partial commutation of the future
annuity payments, provided that such lump sum is determined using
reasonable actuarial methods and assumptions, as determined in good
faith by the issuer of the contract; or (2) accelerate the receipt
of annuity payments that are scheduled to be received within the
ensuing 12 months, regardless of whether the acceleration shortens
the payment period with respect to the annuity, reduces the dollar
amount of benefits to be paid under the contract, or results in a
suspension of annuity payments during the period being accelerated.
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Effective Date of SECURE Act Section 401
Generally, under section 401(b)(1) of the SECURE Act, the
amendments made by section 401 of the SECURE Act to section
401(a)(9)(E) and (H) of the Code apply to distributions with respect to
employees who die after December 31, 2019.
Section 401(b)(2) of the SECURE Act provides that in the case of a
plan maintained pursuant to one or more collective bargaining
agreements between employee representatives and one or more employers
ratified before December 20, 2019, the amendments to section
401(a)(9)(E) and (H) of the Code apply to distributions with respect to
employees who die in calendar years beginning after December 31, 2021,
or if earlier, the later of: (1) December 31, 2019; and (2) the date on
which the last
[[Page 58888]]
of the collective bargaining agreements terminated, without regard to
any extension agreed to on or after the date of enactment of the SECURE
Act (December 20, 2019).
Section 401(b)(3) of the SECURE Act provides that, in the case of a
governmental plan (as defined in section 414(d) of the Code), the
amendments to section 401(a)(9)(E) and (H) apply to distributions with
respect to employees who die after December 31, 2021.
Section 401(b)(4) of the SECURE Act provides that the amendments
made to section 401(a)(9)(E) and (H) of the Code do not apply to a
qualified annuity that is a binding annuity contract in effect on the
date of enactment of the SECURE Act (December 20, 2019) and at all
times thereafter.\3\
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\3\ Section 401(b)(4)(B) of the SECURE Act provides that the
term qualified annuity means, with respect to an employee, an
annuity--
(i) which is a commercial annuity (as defined in section
3405(e)(6) of the Internal Revenue Code of 1986);
(ii) under which the annuity payments are made over the life of
the employee or over the joint lives of such employee and a
designated beneficiary (or over a period not extending beyond the
life expectancy of such employee or the joint life expectancy of
such employee and a designated beneficiary) in accordance with the
regulations described in section 401(a)(9)(A)(ii) of such Code (as
in effect before such amendments) and which meets the other
requirements of section 401(a)(9) of such Code (as so in effect)
with respect to such payments; and
(iii) with respect to which--
(I) annuity payments to the employee have begun before the date
of enactment of the SECURE Act, and the employee has made an
irrevocable election before such date as to the method and amount of
the annuity payments to the employee or any designated
beneficiaries; or
(II) if subclause (I) does not apply, the employee has made an
irrevocable election before the date of enactment of the SECURE Act
as to the method and amount of the annuity payments to the employee
or any designated beneficiaries.
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Section 401(b)(5) of the SECURE Act provides that if an employee
dies before the effective date of section 401(a)(9)(H) of the Code for
a plan, then, in applying the amendments made to section 401(a)(9)(E)
and (H) to the employee's designated beneficiary who dies on or after
the effective date, (1) the amendments apply to any beneficiary of the
designated beneficiary, and (2) the designated beneficiary is treated
as an eligible designated beneficiary for purposes of section
401(a)(9)(H)(ii).
SECURE 2.0 Act Provisions
Prior to amendment by section 107 of the SECURE 2.0 Act, section
401(a)(9)(C) of the Code defined the required beginning date by
reference to the calendar year in which the employee attains age 72.
Section 107 of the SECURE 2.0 Act changes the age by reference to which
the required beginning date is determined from 72 to either 73 or 75
(depending on an employee's date of birth). Section 107(e) of the
SECURE 2.0 Act provides that the amendments made by section 107 of the
SECURE 2.0 Act apply to distributions required to be made after
December 31, 2022, with respect to individuals who attain age 72 after
that date.
Section 202 of the SECURE 2.0 Act instructs the Secretary of the
Treasury (or that person's delegate) to make certain amendments to
Sec. 1.401(a)(9)-6. Those amendments are: (1) to eliminate the
requirement that premiums for an individual's qualifying longevity
annuity contracts (QLACs) be limited to 25-percent of an individual's
account balance; (2) to increase the dollar limitation on premiums for
an individual's QLACs from $125,000 to $200,000 (adjusted for
inflation); (3) to provide that, in the case of a QLAC purchased with
joint and survivor annuity benefits for an individual and the
individual's spouse, a divorce occurring after the original purchase
and before the date that the annuity payments commence under the
contract will not affect the permissibility of the joint and survivor
benefits if certain conditions related to an associated qualified
domestic relations order (or, if applicable, a divorce or separation
agreement) are met; and (4) to provide that a QLAC may include a
provision under which an employee may rescind the purchase of the
contract within a period not exceeding 90 days from the date of
purchase.
Section 204 of the SECURE 2.0 Act instructs the Secretary of the
Treasury (or that person's delegate) to amend the section 401(a)(9)
regulations to provide that if an employee's benefit is in the form of
an individual account under a defined contribution plan, then the plan
may allow the employee to elect to have the amount required to be
distributed for a calendar year from that account to be calculated as
the excess of the total required amount for that year over the annuity
amount for that year. For this purpose, section 204(b)(1) of the SECURE
2.0 Act defines the total required amount with respect to a calendar
year as the amount that would be required to be distributed under Sec.
1.401(a)(9)-5 by including in the balance of that account the value of
all annuity contracts that were purchased with a portion of that
account. Section 204(b)(2) of the SECURE 2.0 Act defines the annuity
amount with respect to a calendar year as the total amount distributed
in that year from all annuity contracts purchased with a portion of the
employee's account under the plan. Section 204(c) of the SECURE 2.0 Act
instructs the Secretary of the Treasury (or that person's delegate) to
make conforming amendments to the regulations that apply to individual
retirement plans (as defined in section 7701(a)(37) of the Code),
section 403(b) plans, and section 457(b) eligible deferred compensation
plans.
Section 325 of the SECURE 2.0 Act amended section 402A of the Code
(relating to designated Roth accounts) to add a new paragraph (d)(5)
providing that the rules requiring minimum distributions to be paid
during the employee's lifetime do not apply to a designated Roth
account. Section 325(b)(1) of the SECURE 2.0 Act provides that this
amendment applies to taxable years beginning after December 31, 2023.
However, section 325(b)(2) of the SECURE 2.0 Act provides that the
amendment does not apply to a required minimum distribution for a year
beginning before January 1, 2024, that is permitted to be paid by April
1, 2024.
Section 402(c)--Rollovers
Section 402(c) of the Code provides rules related to the rollover
of a distribution from a qualified plan to another eligible retirement
plan. Prior to being amended by section 641 of the Economic Growth and
Tax Relief Reconciliation Act of 2001, Public Law 107-16, 115 Stat. 38
(2001) (EGTRRA), section 402(c)(2) of the Code limited the portion of a
distribution that could be rolled over to the amount that would have
been includible in income in the absence of the rollover. Section 641
of EGTRRA and section 411(q) of the Job Creation and Worker Assistance
Act of 2002, Public Law 107-147, 116 Stat. 21 (2002), expanded the
rollover rules to permit a rollover to an IRA of the portion of the
distribution that would have been excluded from gross income in the
absence of the rollover (that is, the portion of the amount distributed
that consists of the employee's investment in the contract). In
addition, that portion may be transferred in a direct trustee-to-
trustee transfer to a qualified trust or to an annuity contract
described in section 403(b) of the Code, but only if the trust or
annuity contract separately accounts for the amount that consists of
the employee's investment in the contract. If only a portion of an
eligible rollover distribution is rolled over or transferred, then the
amount rolled over or transferred is treated as consisting first of the
portion of the distribution that is not allocable to the employee's
investment in the contract.
Under section 402(c), any amount distributed from a qualified plan
generally will be excluded from income
[[Page 58889]]
if it is transferred to an eligible retirement plan no later than the
60th day following the day the distribution is received. Section
402(c)(3)(B) was added to the Code by section 644 of EGTRRA to provide
that the Secretary may waive the 60-day rollover requirement in certain
circumstances. Section 402(c)(3)(C) was added to the Code by section
13613 of the Tax Cuts and Jobs Act, Public Law 115-97, 131 Stat. 2054
(2017) (TCJA), to provide an extended rollover deadline for qualified
plan loan offset (QPLO) amounts.\4\ Specifically, the deadline for
rollover of any portion of a QPLO amount is extended so that it ends no
earlier than the distributee's tax filing due date (including
extensions) for the taxable year in which the offset occurs.
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\4\ A QPLO amount is defined in section 402(c)(3)(C)(ii) as a
plan loan offset amount that is distributed from a qualified
employer plan to a participant or beneficiary solely by reason of
(1) the termination of the qualified employer plan, or (2) the
failure to meet the repayment terms of the loan from the plan
because of the severance from employment of the participant.
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Subject to certain exclusions, section 402(c)(4) provides that an
eligible rollover distribution means any distribution to an employee of
all or any portion of the balance to the credit of the employee in a
qualified plan. Section 402(c)(4)(A) excludes from the definition of an
eligible rollover distribution any distribution that is one of a series
of substantially equal periodic payments payable for the life (or life
expectancy) of the employee (or the employee and the employee's
designated beneficiary), or for a specified period of 10 years or more.
Section 402(c)(4)(B) provides that any distribution that is required
under section 401(a)(9) is excluded from the definition of an eligible
rollover distribution. Section 402(c)(4)(C), which was added to the
Code by section 636(b)(1) of EGTRRA, excludes hardship distributions
from the definition of an eligible rollover distribution.
Prior to being amended by section 641 of EGTRRA, section
402(c)(8)(B) of the Code provided that the only type of eligible
retirement plan permitted to receive a rollover from a qualified plan
was another qualified plan or an IRA. Section 641 of EGTRRA amended
section 402(c)(8)(B) of the Code to expand the list of retirement plans
eligible to receive rollovers to include an annuity contract described
in section 403(b), and an eligible deferred compensation plan described
in section 457(b) that is maintained by an eligible employer described
in section 457(e)(1)(A). Section 617(c) of EGTRRA amended section
402(c)(8)(B) of the Code to provide that if any portion of an eligible
rollover distribution is attributable to distributions from a
designated Roth account (as defined in section 402A), that portion may
be rolled over only to another designated Roth account or a Roth IRA
(as described in section 408A). Section 641 of EGTRRA also added
section 402(c)(10) to the Code to provide that an eligible deferred
compensation plan described in section 457(b) maintained by an eligible
employer described in section 457(e)(1)(A) may accept rollovers from a
different type of eligible retirement plan only if it separately
accounts for the amounts rolled into the plan.
Section 402(c)(9) provides that, if any distribution attributable
to an employee is paid to the spouse of the employee after the
employee's death, then section 402(c) applies to that distribution in
the same manner as if the spouse were the employee. At the time section
402(c)(9) was enacted, a surviving spouse was permitted to roll over an
eligible rollover distribution only to an IRA. However, section 641 of
EGTRRA amended section 402(c)(9) of the Code to expand the type of
eligible retirement plan permitted to receive a spousal rollover to
include not just an IRA, but also any other eligible retirement plan.
Section 402(c)(11) was added to the Code by section 829 of the
Pension Protection Act of 2006, Public Law 109-280, 120 Stat. 780
(2006) (PPA), to provide that an individual who is not the surviving
spouse of the employee and who is a designated beneficiary (as defined
by section 401(a)(9)(E) of the Code) may elect to have any portion of a
distribution made in the form of a direct trustee-to-trustee transfer
to an IRA established for the purpose of receiving that distribution.
If a direct trustee-to-trustee transfer is made pursuant to section
402(c)(11), then the required minimum distribution rules applicable to
distributions after the employee's death in section 401(a)(9)(B) (other
than section 401(a)(9)(B)(iv)) will apply to the IRA. Section
402(c)(11)(B) provides that the Secretary may prescribe rules under
which a trust for the benefit of one or more designated beneficiaries
may be treated as a designated beneficiary for purposes of section
402(c)(11).
The rollover rules of section 402(c) also apply to a distribution
from a section 403(a) qualified annuity plan, a section 403(b) plan,
and an eligible deferred compensation plan described in section 457(b)
maintained by an eligible employer described in section 457(e)(1)(A).
See sections 403(a)(4)(B), 403(b)(8)(B), and 457(e)(16)(B),
respectively.
Sections 403(a), 403(b), 408, and 457--Other Arrangements Subject to
Section 401(a)(9)
Under section 403(a)(1), a qualified annuity plan under section
403(a) must meet the requirements of section 404(a)(2) (which provides
that an annuity plan must satisfy the required minimum distribution
rules under section 401(a)(9)). Sections 403(b)(10), 408(a)(6), and
408(b)(3) provide that a section 403(b) plan, an individual retirement
account, and an individual retirement annuity, respectively, must
satisfy rules similar to the requirements of section 401(a)(9) and the
incidental death benefit requirements of section 401(a). Under section
457(b)(5) and (d)(2), a plan is an eligible deferred compensation plan
described in section 457(b) only if it satisfies the minimum
distribution requirements of section 401(a)(9).
Section 4974--Excise Tax on Failure To Satisfy Section 401(a)(9)
Section 4974(a) (as amended by section 302(a) of the SECURE 2.0
Act) provides that if the amount distributed during the taxable year of
a payee under any qualified retirement plan (as defined in section
4974(c)) or any eligible deferred compensation plan (as defined in
section 457(b)) is less than that taxable year's minimum required
distribution (as defined in section 4974(b)), then an excise tax is
imposed on the payee equal to 25 percent of the amount by which the
minimum required distribution for the taxable year exceeds the amount
actually distributed in that taxable year.
Section 4974(d) provides that if the taxpayer establishes to the
satisfaction of the Secretary that the failure to distribute the entire
amount required in a taxable year was due to reasonable error and
reasonable steps are being taken to remedy that shortfall, then the
Secretary may waive the excise tax imposed in section 4974(a) for that
taxable year.
Section 4974(e) (as added to the Code by section 302(b) of the
SECURE 2.0 Act) provides that in the case of a taxpayer who, by the
last day of the correction window: (1) receives a distribution from the
qualified retirement plan or eligible deferred compensation plan of the
amount by which the required minimum distribution exceeds the actual
amount distributed during the calendar year from that plan (the
shortfall); and (2) submits a return reflecting that tax (as modified
by section 4974(e)), then the
[[Page 58890]]
tax imposed under section 4974(a) is 10 percent of the shortfall (in
lieu of 25 percent). For this purpose, the correction window ends on
the earliest of: (1) the date a notice of deficiency under section 6212
with respect to the tax imposed by section 4974(a) is mailed; (2) the
date on which the tax imposed by section 4974(a) is assessed; or (3)
the last day of the second taxable year that begins after the end of
the taxable year in which the tax under section 4974(a) is imposed.
Good Faith Compliance Standard for Governmental Plans
Section 823 of PPA provides that a governmental plan (as defined in
section 414(d) of the Code) is treated as having complied with section
401(a)(9) if the plan complies with a reasonable, good faith
interpretation of section 401(a)(9).
2002 Final Regulations and Other Published Guidance
Final regulations relating to required minimum distributions from a
qualified plan, an IRA, and a section 403(b) plan have been subject to
a series of amendments and additions since they were published in the
Federal Register on April 17, 2002 (67 FR 18834) (referred to in this
preamble as the ``2002 final regulations''). Final regulations relating
to required minimum distributions from defined benefit plans and
annuity contracts were published in the Federal Register on June 15,
2004 (69 FR 63288) (referred to in this preamble as the ``2004 final
regulations''). Final regulations published in the Federal Register on
September 8, 2009 (74 FR 45993) updated the rules to permit a
governmental plan to comply with the required minimum distribution
rules using a reasonable, good faith interpretation of section
401(a)(9). Final regulations relating to qualifying longevity annuity
contracts were published in the Federal Register on July 2, 2014 (79 FR
37633). Final regulations published in the Federal Register on November
12, 2020 (85 FR 72472) updated the life expectancy and distribution
period tables for distribution calendar years that begin on or after
January 1, 2022.
Final regulations relating to section 402(c) and eligible rollover
distributions were published in the Federal Register on September 22,
1995 (60 FR 49199). Since those regulations were issued, section 402(c)
has been amended several times, and guidance related to those
amendments has generally been issued in the Internal Revenue Bulletin
rather than through the issuance of new regulations. For example,
Notice 2007-7, 2007-1 CB 395, provided guidance related to the
amendments to section 402(c) made by PPA. However, final regulations
related to the extended period of time to roll over a QPLO amount under
section 402(c)(3)(C) were published in the Federal Register on January
6, 2021 (86 FR 464). See Sec. 1.402(c)-3.
Proposed Regulations and Enactment of SECURE 2.0 Act
Proposed regulations under section 401(a)(9) and related statutory
provisions were published in the Federal Register on February 24, 2022
(87 FR 10504).\5\ Comments were received on the proposed regulations,
and a public hearing was held on June 15, 2022. After the close of the
comment period, the SECURE 2.0 Act, which affected many of the
provisions included in the proposed regulations was enacted.
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\5\ Correction notices were published in the Federal Register
with respect to the proposed regulations on March 21, 2022 (87 FR
15907), and May 20, 2022 (87 FR 39845).
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After consideration of the comments and taking into account the
enactment of the SECURE 2.0 Act, the proposed regulations are adopted
by this Treasury decision with certain changes described in the section
of this preamble entitled ``Summary of Comments and Explanation of
Revisions.'' Some of the rules in these final regulations that reflect
provisions of the SECURE 2.0 Act are a clear application of statutory
language for which it is unnecessary to solicit comments (see 5 U.S.C.
553(b)). Other rules in these final regulations are the logical
outgrowth of rules in the proposed regulations that take into account
both the comments received on those proposed rules and the subsequent
enactment of the SECURE 2.0 Act. A notice of proposed rulemaking (REG-
103529-23) in the Proposed Rules section of this issue of the Federal
Register sets forth proposed rules that reflect other provisions of the
SECURE 2.0 Act relating to section 401(a)(9) of the Code.
Summary of Comments and Explanation of Revisions
These regulations update several existing regulations under
sections 401(a)(9), 402(c), 403(b), 457, and 4974 to reflect statutory
amendments that have been made since those regulations were last issued
and to clarify certain issues that have been raised in public comments
and private letter ruling requests. These regulations also replace the
question-and-answer format of the existing regulations under sections
401(a)(9), 402(c), 408, and 4974 with a standard format. Rules under
the 2002 final regulations and the 2004 final regulations that were
proposed to be retained in the updated regulations generally were not
discussed in the Explanation of Provisions that accompanied the
proposed regulations. Similarly, rules under the proposed regulations
that are included in these final regulations without change generally
are not discussed in this Summary of Comments and Explanation of
Revisions.
I. Section 401(a)(9) Regulations
A. Section 1.401(a)(9)-1--Minimum Distribution Requirement in General
1. Statutory Effective Date of the Limitation on Beneficiary Life
Expectancy Distributions
Section 1.401(a)(9)-1 provides general rules that apply for all of
the regulations under section 401(a)(9), including rules addressing
application of the effective date of section 401(a)(9)(H), which was
added to the Code by section 401 of the SECURE Act to limit which
beneficiaries may take distributions over their life expectancies.
Generally, the amendments made by section 401 of the SECURE Act apply
to distributions with respect to an employee who dies on or after
January 1, 2020 (with a later effective date for certain collectively
bargained plans or governmental plans). In addition, if an employee in
a plan died before the section 401(a)(9)(H) effective date for that
plan, the employee had only one designated beneficiary, and the
employee's designated beneficiary dies on or after that effective date,
then the amendments made by section 401 of the SECURE Act apply to any
beneficiary of the designated beneficiary. In this situation, the
designated beneficiary is treated as an eligible designated beneficiary
for purposes of the 10-year payout required by section
401(a)(9)(H)(iii). Accordingly, the death of the designated beneficiary
triggers a requirement to complete payment by the end of the calendar
year that includes the tenth anniversary of the date of the death of
that designated beneficiary. In contrast, if that designated
beneficiary died before that effective date, then the amendments made
by section 401 of the SECURE Act do not apply with respect to the
employee's interest under the plan.
Under the proposed regulations, if an employee in a plan who died
before the section 401(a)(9)(H) effective date for that plan had more
than one designated beneficiary, whether the amendments made by section
401 of the SECURE Act apply depends on when the oldest of
[[Page 58891]]
those beneficiaries dies. Thus, for example, if an employee who died
before January 1, 2020, named a see-through trust as the sole
beneficiary of the employee's interest in the plan, and the trust has
three beneficiaries who are all individuals, then the amendments made
by section 401 of the SECURE Act will apply with respect to
distributions to the trust upon the death of the oldest trust
beneficiary, but only if that beneficiary dies on or after the section
401(a)(9)(H) effective date for that plan. However, if the oldest of
the trust beneficiaries died before that effective date, then the
amendments made by section 401 of the SECURE Act do not apply with
respect to distributions to the trust. Some commenters asked how these
effective date rules apply if the beneficiaries were using the separate
account alternative (under which section 401(a)(9) is applied
separately to the separate accounts for each beneficiary). In that
case, the separate application of section 401(a)(9) with respect to the
separate account for a beneficiary is used to determine whether section
401(a)(9)(H) applies to that beneficiary.
The proposed regulations reflected the exception for a qualified
annuity (that is, an annuity contract for which an employee made an
irrevocable election as to the method and the amount of the annuity
payments before December 20, 2019) described in section 401(b)(4) of
the SECURE Act. One commenter raised questions regarding whether the
requirements for an irrevocable election as to the method and amount of
annuity payments under the contract meant that the contract loses its
exception from the application of section 401(a)(9)(H) merely because
the contract permits additional premiums to be paid or permits the
annuitant to select when distributions under the contract commence. The
final regulations do not change the requirement that, in order for the
contract to be excepted from the application of section 401(a)(9)(H),
the method and amount of annuity payments under the contract be
irrevocably selected before December 20, 2019. For this purpose, the
mere ability to pay an additional premium or change the commencement
date of benefits under the contract after December 20, 2019, does not
cause the contract to lose its exception from the application of
section 401(a)(9)(H). However, if an individual paid an additional
premium or changed the commencement date of benefits under the contract
after that date, then the contract would lose its exception.
Commenters also requested that the final regulations apply the
qualified annuity exception to the situation in which the employee had
died and, after the employee's death, the beneficiary had made an
irrevocable election as to the method and the amount of the annuity
payments before December 20, 2019. These final regulations make that
change.
2. Applicability Date of Final Regulations Under Section 401(a)(9)
A number of commentators requested that the applicability date of
the final regulations be delayed from the proposed applicability date
of distribution calendar years beginning on or after January 1, 2022,
in order to provide adequate time for plan administrators and IRA
providers to familiarize themselves with the new rules and to update
administrative systems to implement necessary changes. In response to
these comments, the final regulations under section 401(a)(9) apply for
distribution calendar years beginning on or after January 1, 2025. For
earlier distribution calendar years, taxpayers must apply the 2002
final regulations and 2004 final regulations, but taking into account a
reasonable, good faith interpretation of the amendments made by
sections 114 and 401 of the SECURE Act.\6\ For the 2023 and 2024
distribution calendar years, taxpayers must also take into account a
reasonable, good faith interpretation of the amendments made by
sections 107, 201, 202, 204, and 337 of the SECURE 2.0 Act.
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\6\ The preamble to the proposed regulations provided that
compliance with the proposed regulations will be treated as a
reasonable, good faith interpretation of the amendments made by
sections 114 and 401 of the SECURE Act.
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B. Section 1.401(a)(9)-2--Distributions Commencing During an Employee's
Lifetime
Section 1.401(a)(9)-2 provides rules for determining the required
beginning date for distributions and whether distributions are treated
as having begun during an employee's lifetime. These rules are based on
the rules in the 2002 final regulations, except that the rules have
been updated to reflect the amendments to the required beginning date
made by section 114 of the SECURE Act and section 107 of the SECURE 2.0
Act.
Specifically, these regulations generally provide that the required
beginning date is April 1 of the calendar year following the later of
(1) the calendar year in which the employee reaches the applicable age,
and (2) the calendar year in which the employee retires from employment
with the employer maintaining the plan. These regulations provide that
the applicable age is determined based on an employee's date of birth,
as follows: (1) for employees born before July 1, 1949, the applicable
age is 70\1/2\; (2) for employees born on or after July 1, 1949, but
before January 1, 1951, the applicable age is 72; (3) for employees
born on or after January 1, 1951, but before January 1, 1959, the
applicable age is 73; and (4) for employees born on or after January 1,
1960, the applicable age is 75.\7\ The final regulations make
conforming changes by replacing references to age 72 in the proposed
regulations (when referring to the age for determining the required
beginning date) with references to the applicable age. The Summary of
Comments and Explanation of Revisions section of this preamble
generally does not describe those changes.
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\7\ Section 107 of the SECURE 2.0 Act includes an ambiguity
relating to the definition of applicable age for employees born in
1959 (section 401(a)(9)(C)(v) provides that the applicable age for
those employees is both 73 and 75). Accordingly, these regulations
reserve a paragraph that defines the applicable age for employees
born in 1959, and that issue is addressed in a notice of proposed
rulemaking (REG-103529-23) in the Proposed Rules section of this
issue of the Federal Register.
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One commenter asked whether a plan could provide a uniform required
beginning date of April 1 of the calendar year following the year an
employee attains age 70\1/2\ that would apply to all employees in the
plan regardless of the employee's date of birth. While the final
regulations do not provide for such an option, the Department of the
Treasury (Treasury Department) and the IRS note that, subject to the
requirements of section 411(a)(11), a plan could require benefits to
commence by that date. In addition, in the case of a defined benefit
plan, Sec. 1.401(a)(9)-6(k) provides that if distributions start prior
to the required beginning date in a distribution form that is an
annuity under which distributions are made in accordance with the
requirements of that section, then the annuity starting date will
generally be treated as the required beginning date for purposes of
applying the rules of section 401(a)(9).
Another commenter asked whether an employee who is not a 5-percent
owner, has benefits under a plan maintained by more than one employer,
and retires from employment from any of the employers participating in
the plan is treated as having retired for purposes of section
401(a)(9)(C) if that employee is employed by a different employer
participating in the same plan. The final regulations add language
clarifying that the employee is not treated as having
[[Page 58892]]
retired for purposes of section 401(a)(9)(C)(i)(II) in this situation.
C. Section 1.401(a)(9)-3--Death Before Required Beginning Date
Section 1.401(a)(9)-3 provides rules for distributions if an
employee dies before the employee's required beginning date. These
rules are based on the rules in the 2002 final regulations but are
updated to reflect new section 401(a)(9)(H). For example, the option
for a designated beneficiary of an employee who participates in a
defined contribution plan to elect to receive distributions over the
designated beneficiary's life expectancy is limited to an eligible
designated beneficiary. These regulations are also updated to reflect
the amendment to section 402A(d) made by section 325 of the SECURE 2.0
Act and provide that if an employee's entire interest under a defined
contribution plan is in a designated Roth account, then no
distributions are required to be made to the employee during the
employee's lifetime. Thus, upon the employee's death, that employee is
treated as having died before his or her required beginning date.
The proposed regulations described satisfaction of the life
expectancy rule for an eligible designated beneficiary of an employee
in a defined contribution plan by reference to the rules in Sec.
1.401(a)(9)-5. The final regulations clarify that the requirement to
take an annual distribution in accordance with the preceding sentence
continues to apply for all subsequent calendar years until the
employee's interest is fully distributed. Thus, a required minimum
distribution is due for the calendar year of the eligible designated
beneficiary's death, and that amount must be distributed during that
calendar year to any beneficiary of the deceased eligible designated
beneficiary to the extent it has not already been distributed to the
eligible designated beneficiary.
Under the proposed regulations, if the employee has a designated
beneficiary (who is an eligible designated beneficiary in the case of a
defined contribution plan), the plan may: (1) provide that the 5-year
rule (in the case of a defined benefit plan) or 10-year rule (in the
case of a defined contribution plan) applies; (2) provide that the life
expectancy rule applies; or (3) permit the employee or the designated
beneficiary to elect between the applicable 5-year or 10-year rule or
the life expectancy rule.\8\ The proposed regulations also provided
that, if a plan permits an employee or designated beneficiary to elect
between the applicable 5-year or 10-year rule and the life expectancy
rule, then the plan must specify the default that would apply when the
employee or designated beneficiary has not made an election. Consistent
with requests made by commenters, the final regulations provide that
the requirement to specify a default applies only if the plan is
intended to be operated using a default different than the default that
would apply under the regulations if the employee or designated
beneficiary did not make an affirmative election. Thus, for example, if
the intended operation in the absence of an election is that a
surviving spouse who is the sole beneficiary is to wait to begin
distributions until the employee would have reached the applicable age,
then the plan is not required to provide for a default (because that is
the rule that would apply under the regulations if the surviving spouse
did not make an affirmative election).
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\8\ If a defined contribution plan does not include either the
provision that applies the 10-year rule or the provision under which
a beneficiary can elect between the 10-year rule and the life
expectancy rule, then the plan must provide that the life expectancy
rule applies for an eligible designated beneficiary.
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In addition, consistent with requests made by commenters, the final
regulations clarify that a defined contribution plan may provide that a
particular distribution method will apply to certain categories of
eligible designated beneficiaries or that an election as to which
distribution method applies is available only for certain categories of
eligible designated beneficiaries. Thus, for example, a plan may
provide that only an employee's surviving spouse may elect between the
10-year rule and life expectancy payments.
D. Section 1.401(a)(9)-4--Determination of the Designated Beneficiary
Section 1.401(a)(9)-4 provides rules addressing the determination
of the employee's beneficiary for purposes of section 401(a)(9),
including the definition of eligible designated beneficiary in section
401(a)(9)(E)(ii). Section 1.401(a)(9)-4 also provides rules addressing
the treatment of trust beneficiaries as designated beneficiaries when a
trust is named as the beneficiary of an employee's interest in a plan.
1. Eligible Designated Beneficiaries
Under section 401(a)(9)(E)(ii), an eligible designated beneficiary
is a designated beneficiary who, as of the date of the employee's
death, is (1) the surviving spouse of the employee, (2) a child of the
employee who has not yet reached the age of majority, (3) disabled, (4)
chronically ill, or (5) not more than 10 years younger than the
employee.
a. Definition of Child
Under section 401(9)(E)(ii)(III), one of the categories of eligible
designated beneficiary is a child of the employee who has not yet
reached the age of majority. Consistent with requests made by
commenters, the final regulations clarify that the definition of child
in section 152(f)(1) applies for this purpose (so that the definition
includes a stepchild, an adopted child, and an eligible foster child).
b. Definition of Disability
The regulations provide rules for the determination of whether an
individual is disabled for purposes of section 401(a)(9). Section
401(a)(9)(E)(ii)(III) applies the definition of disability under
section 72(m)(7) for purposes of section 401(a)(9). Section 72(m)(7)
provides a standard of disability based on whether an individual is
unable to engage in substantial gainful activity. However, that
standard may be difficult to apply for individuals under age 18.
Accordingly, if, as of the date of the employee's death, a beneficiary
is younger than age 18, then the regulations apply a comparable
standard that requires the beneficiary to have a medically determinable
physical or mental impairment that results in marked and severe
functional limitations, and that can be expected to result in death or
to be of long-continued and indefinite duration.
These regulations also provide a safe harbor for the determination
of whether a beneficiary is disabled. Specifically, if, as of the date
of the employee's death, the Commissioner of Social Security has
determined that the individual is disabled within the meaning of 42
U.S.C. 1382c(a)(3), then that individual will be deemed to be disabled
for purposes of section 401(a)(9) of the Code. The final regulations
clarify that this alternative is merely a safe harbor and that a
beneficiary who does not have a Social Security determination of
disability can apply the general standards described in the preceding
paragraph.
Several commenters asked for additional safe harbors for the
determination of whether a beneficiary is disabled. For example, one
commenter requested that the final regulations include a safe harbor
under which a beneficiary is considered to be a disabled individual if
a State court has determined that the beneficiary is incapacitated for
purposes of State guardianship proceedings. Another
[[Page 58893]]
commentor asked for a safe harbor under which an individual is treated
as disabled or chronically ill if that individual is an eligible
individual with respect to an ABLE account as described in section
529A(e)(1). The regulations do not provide for those safe harbors
because the standards required for a State law guardianship proceeding
or to be an eligible individual with respect to an ABLE account could
be broader than the definition of disability in section 72(m)(7).
c. Documentation Requirements for Disabled or Chronically Ill Status
The regulations provide that, with respect to a beneficiary who is
disabled or chronically ill as of the date of the employee's death,
documentation of the disability or chronic illness must be provided to
the plan administrator no later than October 31 of the calendar year
following the calendar year of the employee's death. If the designated
beneficiary is chronically ill under any of the definitions in section
7702B(c)(2)(A) as of the date of the employee's death, the
documentation must include a certification by a licensed health care
practitioner (as defined in section 7702B(c)(4)) that the designated
beneficiary is chronically ill. Additionally, in accordance with
section 401(a)(9)(E)(ii)(IV), if the beneficiary is chronically ill
under the definition in section 7702B(c)(2)(A)(i), then the
documentation also must include a certification from a licensed health
care practitioner that, as of the date of the certification, the
individual is unable to perform (without substantial assistance from
another individual) at least 2 activities of daily living and the
period of that inability is an indefinite one that is reasonably
expected to be lengthy in nature.
For a designated beneficiary who is an eligible designated
beneficiary because, at the time of the employee's death, the
designated beneficiary is the employee's minor child and that child
also is disabled or chronically ill within the meaning of the
regulations, the designated beneficiary will continue to be treated as
an eligible designated beneficiary after reaching the age of majority
(on account of being disabled or chronically ill) only if these
documentation requirements are timely met with respect to that
designated beneficiary. Similarly, if the employee's designated
beneficiary is the employee's surviving spouse and that spouse also is
disabled or chronically ill at the time of the employee's death, then
the surviving spouse will be treated as disabled or chronically ill for
purposes of the applicable multi-beneficiary trust rules only if the
documentation requirements are timely met with respect to the surviving
spouse.
One commenter requested that the final regulations replace the
October 31 deadline for providing documentation reflecting a designated
beneficiary's disability or chronic illness and instead provide that
the deadline be before a full distribution would be required if the
beneficiary was not disabled. The regulations do not make that change
because of the need for a medical assessment of the designated
beneficiary's disability or chronic illness as of the date of the
employee's death. Allowing a 10-year delay before making this medical
assessment (or an even further delay in the case of a child of the
employee who had not reached the age of majority as of the date of the
employee's death) could result in a less reliable assessment that the
beneficiary was disabled or chronically ill as of the date of the
employee's death than an assessment made within a short period after
that date.
Several commenters requested that plan administrators be permitted
to rely on self-certifications from a designated beneficiary (or, in
the case of a see-through trust, the trustee of that trust) that the
beneficiary is disabled or chronically ill within the meaning of Sec.
1.401(a)(9)-4(d). The commenters argued that plan administrators and
IRA custodians should not be required to review personal health records
or similar documents to determine whether a beneficiary is disabled or
chronically ill and that the self-certification process has already
been established for other areas of plan administration, including in
the case of coronavirus-related distributions pursuant to Notice 2020-
50, 2020-28 IRB 35.
The Treasury Department and the IRS generally disagree with the
commenters' request that plan administrators should be able to rely on
a beneficiary's self-certification of disability or chronic illness.
This documentation requirement is different than that of coronavirus-
related distributions because there is the potential for a delay of
distributions of the employee's account for long periods if the
beneficiary meets the disabled or chronically ill standard in the Code.
As a result, plans should require documentation from a licensed health
care practitioner (rather than rely on a certification by the
beneficiary).
While the final regulations do not eliminate the deadline to
provide documentation to a plan administrator, an example illustrating
this rule has been modified to show that the required documentation
need not be overly detailed. Under the example, the licensed health
care practitioner merely certifies that, as of a specified date, the
designated beneficiary is unable to engage in any substantial gainful
activity by reason of a physical impairment that can be expected to be
of long-continued and indefinite duration. In addition, the regulations
include a transition rule for the documentation deadline in the case of
an employee who died in 2020, 2021, 2022, or 2023. In that case, the
documentation of the designated beneficiary's disability or chronic
illness does not need to be furnished to the plan administrator until
October 31, 2025. Finally, as described in section IV of this Summary
of Comments and Explanation of Revisions, the final regulations provide
that there is no requirement to provide documentation of a designated
beneficiary's disability or chronic illness to an IRA custodian.
2. Trust as Beneficiary
The final regulations retain the see-through trust concept in the
2002 final regulations under which certain beneficiaries of a trust are
treated as beneficiaries of the employee if the trust meets specified
requirements. Specifically, to be a see-through trust, the trust must
meet the following requirements: (1) the trust is valid under State law
or would be valid but for the fact that there is no corpus; (2) the
trust is irrevocable or will, by its terms, become irrevocable upon the
death of the employee; (3) the beneficiaries of the trust who are
beneficiaries with respect to the trust's interest in the employee's
benefit are identifiable; and (4) the specified documentation
requirements are satisfied.
a. Determining Which See-Through Trust Beneficiaries Are Treated as
Beneficiaries of the Employee
1. See-Through Trust Beneficiaries Taken Into Account
Generally, the regulations provide that a beneficiary of a see-
through trust is treated as a beneficiary of the employee if the
beneficiary could receive amounts in the trust representing the
employee's interest in the plan that are neither contingent upon nor
delayed until the death of another trust beneficiary who does not
predecease (and who is not treated as having predeceased) \9\ the
employee. A
[[Page 58894]]
beneficiary described in the preceding sentence is referred to as a
primary beneficiary in this Summary of Comments and Explanation of
Revisions. One commenter requested that the final regulations provide a
uniform simultaneous death provision for determining whether one
beneficiary predeceases another beneficiary. The final regulations do
not adopt this request because the disposition of property interests is
governed by State law rather than by these regulations.
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\9\ For purposes of this rule, a beneficiary is treated as
having predeceased the employee if the beneficiary is treated as
predeceasing the employee pursuant to a simultaneous death provision
under applicable State law or a qualified disclaimer satisfying
section 2518 that applies to the entire interest to which the
beneficiary is entitled.
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Whether any other see-through trust beneficiary also is treated as
a beneficiary of the employee depends upon whether the see-through
trust is a conduit trust or an accumulation trust. A conduit trust is
defined in the regulations as a see-through trust, the terms of which
provide that all plan distributions will, upon receipt by the trustee,
be paid directly to, or for the benefit of, primary beneficiaries
during their lifetimes. For example, if an employee names a see-through
trust as the beneficiary of the employee's interest in a plan and the
trust terms provide that all distributions from the plan to the trust
during the surviving spouse's life will, upon receipt by the trustee,
be paid directly to that surviving spouse, then the trust is a conduit
trust and the surviving spouse is treated as a beneficiary of the
employee because the surviving spouse could receive amounts in the
trust with respect to the deceased employee's interest in the plan that
are neither contingent upon nor delayed until the death of another
trust beneficiary. In this case, any beneficiary who could receive
distributions from the trust with respect to the deceased employee's
interest in the plan after the surviving spouse's death is not treated
as a beneficiary of the employee.
An accumulation trust is any see-through trust that is not a
conduit trust, and under an accumulation trust, there are potentially
more beneficiaries. A beneficiary of an accumulation trust is treated
as a beneficiary of the employee if that beneficiary could receive
amounts accumulated in the trust representing the employee's interest
in the plan that were not distributed to other beneficiaries during
their lifetimes (unless that beneficiary is disregarded pursuant to the
rules described in section II.D.2.a.2 of this Summary of Comments and
Explanation of Revisions). A beneficiary described in the preceding
sentence is referred to as a residual beneficiary in this Summary of
Comments and Explanation of Revisions.
As an illustration of the rule in the preceding paragraph, assume
an employee designates a see-through trust as the sole beneficiary of
the employee's interest in the plan. The terms of the see-through trust
provide that the trustee is to pay specified amounts from the trust to
the employee's surviving spouse, but do not provide that all plan
distributions made to the trust will, upon receipt by the trustee, be
paid directly to, or for the benefit of, the spouse. Upon the spouse's
death, the see-through trust will terminate and the amounts remaining
in the trust will be paid to the employee's brother. The surviving
spouse is treated as a beneficiary of the employee (because the
surviving spouse could receive amounts in the see-through trust
representing the deceased employee's interest in the plan that are
neither contingent upon nor delayed until the death of another trust
beneficiary). Moreover, because not all distributions from the plan to
the see-through trust are required, upon receipt by the trustee, to be
paid directly to, or for the benefit of, a trust beneficiary, the trust
is an accumulation trust. As a result, the employee's brother is
treated as a beneficiary of the employee because he is the residual
beneficiary of an accumulation trust (unless the employee's brother is
disregarded pursuant to the rules described in section II.D.2.a.2 of
this Summary of Comments and Explanation of Revisions).
One commenter requested that the final regulations provide that a
see-through trust can still be a conduit trust if it includes certain
trust terms. Specifically, the commenter requested that final
regulations provide that a see-through trust will not fail to be
treated as a conduit trust merely because that trust does not provide
that, with respect to the deceased employee's interest in the plan, all
distributions will, upon receipt by the trustee, be paid directly to a
specified beneficiary provided that the beneficiary has a unilateral
withdrawal right with respect to those amounts. The final regulations
do not include this change because the Treasury Department and the IRS
are concerned that if a trust merely provides a beneficiary with this
type of unilateral withdrawal right (rather than providing that any
distribution from the plan, upon receipt by the trustee, be paid
directly to that beneficiary), then there could be an accumulation
within the trust of amounts representing the employee's interest in the
plan that could be paid to a different trust beneficiary. In those
cases, the trust beneficiaries who could benefit from that accumulation
should also be treated as beneficiaries of the employee for purposes of
section 401(a)(9) (without regard to the taxability of the
distribution).
Commenters requested that the regulations clarify the see-through
trust rules in the case of payments that are not made directly to the
trust beneficiary but are made indirectly for the benefit of the trust
beneficiary (such as payments to a custodial account for the benefit of
a minor child). In response to those comments, these regulations
provide that a trust beneficiary will be treated as if that beneficiary
could receive amounts in the trust representing the employee's interest
in the plan regardless of whether those amounts could be paid directly
to that beneficiary or indirectly for the benefit of that beneficiary.
2. Disregarded Beneficiaries of See-Through Trusts
The regulations provide for certain beneficiaries of a see-through
trust to be disregarded as beneficiaries of the employee for purposes
of section 401(a)(9). Specifically, a beneficiary of a see-through
trust is not treated as a beneficiary of the employee if that trust
beneficiary could receive payments from the trust that represent the
employee's interest in the plan only after the death of another trust
beneficiary who is a residual beneficiary (and is not also a primary
beneficiary) who did not predecease (and is not treated as having
predeceased) the employee.
One commenter requested that the disregard described in the
preceding paragraph should not be affected by a trustee's ability to
make sprinkling distributions to a residual beneficiary (that is,
distributions for the health, support, or maintenance of that residual
beneficiary) during the lifetime of a primary beneficiary. The Treasury
Department and the IRS disagree with this request because of the
potential for the primary beneficiary to be entitled to only a nominal
amount (so that the residual beneficiary entitled to sprinkling
distributions is effectively the primary beneficiary). In that case,
the beneficiary who is entitled to amounts representing the employee's
interest in the plan after the death of the residual beneficiary has a
significant interest in amounts accumulated in the trust representing
the employee's interest in the plan and should be treated as a
beneficiary of the employee.
The regulations provide another exception under which a see-through
trust beneficiary with a residual interest
[[Page 58895]]
is disregarded as a beneficiary of the employee. Specifically, the
regulations provide that if the see-through trust terms require a full
distribution of amounts in the trust representing the employee's
interest in the plan to a specified trust beneficiary by the later of:
(1) the calendar year following the calendar year of the employee's
death; and (2) the end of the calendar year that includes the tenth
anniversary of the date the designated beneficiary reaches the age of
majority, then any other beneficiary whose sole entitlement to
distributions is conditioned on the specified trust beneficiary's death
before the full distribution is required is disregarded as a
beneficiary of the employee.
One commenter requested that the final regulations also disregard
beneficiaries who have a contingent interest in the employee's benefit
under the plan if the likelihood of that contingency occurring is
remote (for example, the probability of that contingency occurring is
less than 5 percent). The final regulations do not adopt this broad
disregard because it is too difficult to determine the likelihood of a
stated event occurring prior to a specified date in cases other than an
individual reaching a particular age or a residual beneficiary
predeceasing another designated beneficiary entitled to amounts in the
trust.
b. Documentation Requirements for See-Through Trusts
The proposed regulations adopted the see-through trust
documentation requirements described in the 2002 final regulations. The
documentation requirements in the proposed regulations generally
provided that the plan administrator must timely receive either (1) a
copy of the actual trust instrument, or (2) a list of all the trust
beneficiaries, including contingent beneficiaries, with a description
of the conditions on their entitlement sufficient to establish who are
the beneficiaries.
Commenters noted that plan administrators and IRA custodians are
not experts in the intricacies of various State trust laws and thus,
are not qualified to read through complex trust instruments to
determine who the beneficiaries are for purposes of section 401(a)(9).
The commenters requested that final regulations allow for a
certification from the trustee of the trust as to the beneficiaries who
are to be treated as beneficiaries of the employee for purposes of
section 401(a)(9). The final regulations do not permit a trustee to
certify to a plan administrator the list of beneficiaries to be treated
as beneficiaries of the employee because plan administrators are better
suited to determine how section 401(a)(9) applies with respect to an
employee.
As an alternative to allowing a plan administrator to rely on the
trustee's certification of the trust beneficiaries who are to be
treated as the employee's beneficiaries for purposes of section
401(a)(9), the commenters requested that final regulations allow for a
plan administrator to specify that a list of the trust beneficiaries
with a description of the conditions on their entitlement must be
provided (rather than the actual trust document). The final regulations
clarify that a plan administrator may choose which of the two
alternatives will be accepted. Thus, the plan administrator may require
the trustee to provide a list of trust beneficiaries with a description
of the conditions on their entitlement in lieu of the actual trust
document. In addition, as described in section IV of this Summary of
Comments and Explanation of Revisions, the regulations provide that a
trustee of a see-through trust is not required to provide the trust
documentation to an IRA custodian, trustee, or issuer.
c. Applicable Multi-Beneficiary Trusts
The proposed regulations provided guidance on a particular type of
see-through trust defined in section 401(a)(9)(H)(v) as an applicable
multi-beneficiary trust. Specifically, the proposed regulations defined
two types of applicable multi-beneficiary trusts. A type I applicable
multi-beneficiary trust is a trust with at least one beneficiary who is
disabled or chronically ill, the terms of which provide that the trust
is to be divided immediately upon the death of the employee into
separate trusts for each beneficiary (as described in section
401(a)(9)(H)(iv)(I)). A type II applicable multi-beneficiary trust is
an applicable multi-beneficiary trust, the terms of which provide that
no individual other than a disabled or chronically ill eligible
designated beneficiary has any right to the employee's interest in the
plan until the death of all such eligible designated beneficiaries with
respect to the trust (as described in section 401(a)(9)(H)(iv)(II)).
The proposed regulations permitted section 401(a)(9) to be applied
separately with respect to the separate interests of the beneficiaries
reflected in the separate trusts of a type I applicable multi-
beneficiary trust. However, the final regulations do not include a
definition of a type I applicable multi-beneficiary trust. This is
because, as described in section I.H of this Summary of Comments and
Explanation of Revisions, the final regulations include a broader rule
that permits separate application of section 401(a)(9) with respect to
the separate interests of the beneficiaries reflected in a trust if
that trust is to be divided immediately upon the death of the employee
into separate trusts for each beneficiary, without regard to whether
any of the beneficiaries are disabled or chronically ill.
With respect to the definition of a type II applicable multi-
beneficiary trust, one commenter requested that the final regulations
provide that the trust be permitted to include beneficiaries that are
not individuals (such as a charity) that are entitled to distributions
after the death of the disabled or chronically ill beneficiary. Section
337(b) of the SECURE 2.0 Act amended section 401(a)(9)(H)(v) of the
Code to provide a modified version of that request. Accordingly, these
regulations adopt a modified version of the definition of a type II
applicable multi-beneficiary trust from the proposed regulations. Under
that modification, certain organizations described in section
170(b)(1)(A) to which charitable contributions may be made are treated
as designated beneficiaries.\10\
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\10\ The final regulations also reflect the change to section
401(a)(9)(H)(iv)(II) of the Code made by section 337 of the SECURE
2.0 Act. Under this change, the restriction on payments from a type
II applicable multi-beneficiary trust prior to the death of the
disabled or chronically ill individual applies to any other
beneficiary (rather than applying to any other individual).
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In addition, one commenter requested clarification in the case of a
trust that provides for a disabled or chronically ill eligible
designated beneficiary's interest in the trust to be terminated if
necessary to preserve eligibility for certain public benefits. These
regulations continue to require that no trust beneficiary other than
the disabled or chronically ill beneficiary may receive payments from
the trust prior to the death of that beneficiary in order for the trust
to be treated as an applicable multi-beneficiary trust. However, if the
trust provides that the other trust beneficiaries cannot receive any
amounts from the trust until the death of the disabled or chronically
ill beneficiary notwithstanding whether that beneficiary's interest in
the trust is terminated, then the termination provision will not cause
the trust to fail to be treated as an applicable multi-beneficiary
trust. In this case, if the disabled or chronically ill beneficiary's
interest is terminated pursuant to that trust provision after September
30 of the calendar year following the calendar year of the employee's
death, then the trust is treated as having been modified
[[Page 58896]]
to add those other beneficiaries as of the date the termination
occurred.
E. Section 1.401(a)(9)-5--Required Minimum Distributions From Defined
Contribution Plans
1. In General
Like the proposed regulations, these final regulations retain the
general method in the 2002 final regulations by which a required
minimum distribution from a defined contribution plan is calculated in
any calendar year when an employee dies on or after the required
beginning date or when an employee's eligible designated beneficiary is
taking annual life expectancy payments after an employee dies before
the required beginning date. Specifically, the required minimum
distribution for a calendar year is determined by dividing the
employee's account balance as of the end of the prior calendar year by
the applicable denominator. In addition to the requirement to take
annual required minimum distributions, the regulations implement the
amendments made by section 401 of the SECURE Act by requiring that a
full distribution of the employee's remaining interest be taken in
certain circumstances.
2. Purchase of Annuity Contract With Portion of Employee's Individual
Account
The 2002 final regulations provided a special bifurcation rule in
the case of an employee with an individual account who used a portion
of that account to purchase an annuity contract. In that case, those
regulations provided that payments from the annuity contract were
required to satisfy the rules of Sec. 1.401(a)(9)-6 and payments of
the remaining account balance were required to satisfy the rules of
Sec. 1.401(a)(9)-5. In addition, because the required minimum
distribution for a calendar year is determined based on the account
balance as of the end of the previous calendar year, the 2002 final
regulations provided that, for the calendar year in which the annuity
contract is purchased, payments made under the contract are treated as
distributions from the individual account for purposes of determining
whether section 401(a)(9) has been satisfied with respect to that
account. The proposed regulations generally retained these rules.
In accordance with section 204 of the SECURE 2.0 Act, these
regulations provide that a plan may allow the employee to elect to have
the amount required to be distributed for a calendar year from an
individual account to be calculated as the excess of the total required
amount (as defined in section 204(b)(1) of the SECURE 2.0 Act) for that
year over the annuity amount (as defined in section 204(b)(2) of the
SECURE 2.0 Act) for that year. Accordingly, these final regulations
provide an alternative to the bifurcation rule described in the
preceding paragraph. Under this rule, in lieu of satisfying section
401(a)(9) separately with respect to the annuity contract 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 individual account.
These regulations reserve a paragraph for rules of operation with
respect to this alternative, including guidance related to the
determination of the fair market value of the annuity contract. These
rules are included in a notice of proposed rulemaking (REG-103529-23)
in the Proposed Rules section of this issue of the Federal Register.
3. Distributions After the Employee's Death
a. Requirement To Satisfy Both Section 401(a)(9)(B)(i) and (ii) in the
Case of an Employee Who Dies On or After the Required Beginning Date
Section 401(a)(9)(B)(i) provides rules that apply if an employee
dies after benefits have commenced. While the 5-year rule under section
401(a)(9)(B)(ii) generally applies if an employee dies before the
employee's required beginning date, section 401(a)(9)(H)(i) provides
that section 401(a)(9)(B)(ii) applies in certain cases by substituting
10 years for 5 years and applies whether or not the employee dies
before or after the employee's required beginning date. Accordingly, if
an employee dies after the required beginning date, distributions to
the employee's beneficiary for calendar years after the calendar year
in which the employee died must satisfy section 401(a)(9)(B)(i) as well
as section 401(a)(9)(B)(ii). In order to satisfy both of these
requirements, the regulations provide for the same calculation of the
annual required minimum distribution that was adopted in the 2002 final
regulations but with an additional requirement that a full distribution
of the employee's entire interest in the plan be made upon the
occurrence of certain designated events (discussed in section I.E.3.c
of this Summary of Comments and Explanation of Revisions).
Several commenters requested that the final regulations eliminate
the requirement for continued annual distributions if an employee dies
on or after the employee's required beginning date. The commenters set
forth an interpretation of section 401(a)(9)(H) under which, if an
employee dies on or after the employee's required beginning date, the
10-year rule described in section 401(a)(9)(B)(ii) (as modified by
section 401(a)(9)(H)(i)) applies in lieu of the ``at least as rapidly''
rule described in section 401(a)(9)(B)(i). Commenters also asserted
that requiring continued annual distributions adds complexity to the
regulations (in that the beneficiary would have to know whether the
employee died before or after the employee's required beginning date to
apply this rule).
The final regulations do not eliminate the requirement for
continued annual distributions if an employee dies on or after the
employee's required beginning date. The Treasury Department and the IRS
do not think that the commenters' interpretation is consistent with a
plain reading of the statute. Instead, the Treasury Department and the
IRS have determined that section 401(a)(9)(B)(i) and (ii) both apply if
an employee dies after the employee's required beginning date (unless
the designated beneficiary is an eligible designated beneficiary taking
life expectancy payments under section 401(a)(9)(B)(iii)). Read
together, those provisions generally require annual distributions to
continue while also requiring full distribution of the employee's
interest in the plan by the end of the calendar year that includes the
tenth anniversary of the date of the employee's death.
The Treasury Department and the IRS have also concluded that the
overarching policy of section 401(a)(9) and the amendments made by
section 401 of the SECURE Act support the interpretation in these
regulations. Since it was first added to the Code, section 401(a)(9)
has always included the concept of a required beginning date, under
which, once required minimum distributions began to either an employee
or designated beneficiary, they were required to continue until the
employee's entire interest under the plan was fully distributed, and
these regulations retain this requirement. There is little indication
in section 401 of the SECURE Act to suggest that Congress intended to
allow distributions of an employee's account to temporarily cease for
up to 9 years once annual required minimum distributions have begun.
Moreover, the requirement to continue annual distributions does not
increase complexity (in that this
[[Page 58897]]
requirement merely retains the rules that were in place before the
addition of section 401(a)(9)(H), but subject to the full distribution
requirement described in section I.E.3.c of this Summary of Comments
and Explanation of Revisions).
The proposed regulations provided a similar requirement to continue
annual distributions for 10 years if an eligible designated beneficiary
who was taking life expectancy payments dies or if an eligible
designated beneficiary who is a minor child of the employee and who was
taking life expectancy payments reaches the age of majority. Commenters
raised similar concerns regarding this requirement. For the reasons
described in the preceding paragraph, these regulations retain this
requirement for continued annual distributions for up to 10 years
after: (1) the death of an eligible designated beneficiary who was
taking life expectancy payments; or (2) the attainment of the age of
majority (in the case of an eligible designated beneficiary who was a
minor child of the employee taking life expectancy payments).
While the final regulations do not eliminate the annual
distribution requirement in cases in which annual life expectancy
payments have begun, the Treasury Department and the IRS issued Notice
2022-53, 2022-45 IRB 437, Notice 2023-54, 2023-31 IRB 382, and Notice
2024-35, 2024-19 IRB 1051, in response to comments requesting
transition relief for this requirement. Under those notices, if a
distribution would have been required to be made to certain
beneficiaries under these regulations had they applied before January
1, 2025, then: (1) a plan will not fail to be qualified for failing to
make that distribution in 2021, 2022, 2023, or 2024; and (2) the
taxpayer who failed to take the distribution will not be assessed an
excise tax for failing to do so.\11\ This relief applies with respect
to a beneficiary who is a designated beneficiary of an employee who
died in 2020, 2021, 2022, or 2023, and after the employee's required
beginning date, provided that the beneficiary was not an eligible
designated beneficiary who used the lifetime or life expectancy
payments exception under section 401(a)(9)(B)(iii). Those notices also
provided comparable relief for the case in which an eligible designated
beneficiary who was taking annual life expectancy payments died in
2020, 2021, 2022, or 2023, and that beneficiary's successor beneficiary
failed to take a distribution in 2021, 2022, 2023, or 2024.
---------------------------------------------------------------------------
\11\ This relief does not require taxpayers to make up missed
required minimum distributions nor does it permit taxpayers to
extend the 10-year deadline by which a full distribution is required
to be made. For example, if an employee died in 2020, then in 2025,
there are six years remaining in the 10-year period without regard
to whether the designated beneficiary took distributions in 2021,
2022, 2023, or 2024. In 2030, the designated beneficiary must take a
distribution of the remaining account balance.
---------------------------------------------------------------------------
b. Determination of Applicable Denominator
If an employee died on or after the required beginning date (or the
employee died before the required beginning date and the employee's
eligible designated beneficiary is taking life expectancy distributions
in accordance with section 401(a)(9)(B)(iii) and these regulations),
then for calendar years after the calendar year in which the employee
died, the applicable denominator generally is the remaining life
expectancy of the designated beneficiary.\12\ The beneficiary's
remaining life expectancy generally is calculated using the age of the
beneficiary in the year following the calendar year of the employee's
death, reduced by one for each subsequent calendar year.
---------------------------------------------------------------------------
\12\ In the case of an employee who died on or after the
employee's required beginning date, the designated beneficiary may
use the employee's remaining life expectancy if it is longer than
the beneficiary's remaining life expectancy.
---------------------------------------------------------------------------
However, as an exception to these general rules, if the employee's
spouse is the employee's sole beneficiary, then the applicable
denominator during the spouse's lifetime is the spouse's life
expectancy (which reflects an annual recalculation in accordance with
section 401(a)(9)(D)). The final regulations clarify that in this case,
for calendar years after the calendar year in which the spouse died, in
determining the required minimum distribution to the spouse's
beneficiary, the applicable denominator is the spouse's life expectancy
calculated using the spouse's age as of the spouse's birthday in the
calendar year in which the spouse died, reduced by one for each
subsequent calendar year.
The final regulations reflect the amendments made to section
401(a)(9)(B)(iv) by section 327 of the SECURE 2.0 Act under which a
surviving spouse who is the sole beneficiary of the employee may elect
to be treated as the employee for certain purposes. However, the rules
relating to this election are reserved in these final regulations and
included in a notice of proposed rulemaking (REG-103529-23) in the
Proposed Rules section of this issue of the Federal Register.
c. Full Distribution Required in Certain Circumstances
Under the proposed regulations, if an employee's interest is in a
defined contribution plan to which section 401(a)(9)(H) applies, in
order to satisfy the 5-year rule of section 401(a)(9)(B)(ii) (or, if
applicable, the exception to that rule in section 401(a)(9)(B)(iii),
taking into account section 401(a)(9)(E)(iii) and (H)), then the
employee's entire interest in the plan must be distributed by the
earliest of the following dates:
(1) The end of the tenth calendar year following the calendar year
in which the employee died if the employee's designated beneficiary is
not an eligible designated beneficiary;
(2) The end of the tenth calendar year following the calendar year
in which the designated beneficiary died if the employee's designated
beneficiary was an eligible designated beneficiary;
(3) The end of the tenth calendar year following the calendar year
in which the beneficiary reaches the age of majority if the employee's
designated beneficiary is the child of the employee who had not yet
reached the age of majority as of the date of the employee's death; or
(4) The end of the calendar year in which the applicable
denominator would have been less than or equal to one if it were
determined using the beneficiary's remaining life expectancy, if the
employee's designated beneficiary is an eligible designated
beneficiary, and if the applicable denominator is determined using the
employee's remaining life expectancy.
The final regulations generally retain these full distribution
requirements (with minor language changes clarifying those
requirements). However, consistent with requests made by commenters,
the regulations remove the requirement for a full distribution by the
end of the calendar year in which the applicable denominator would have
been less than or equal to one if it were determined using the
beneficiary's remaining life expectancy (which would have applied in
the case of a designated beneficiary who was older than the employee).
Accordingly, in the case of an eligible designated beneficiary who was
born before the employee, if that beneficiary is taking distributions
over the employee's remaining life expectancy, then a full distribution
is not required until the calendar year in which the applicable
denominator is less than or equal to one.
d. Multiple Designated Beneficiaries
The proposed regulations provided that if the employee has more
than one designated beneficiary then the
[[Page 58898]]
applicable denominator is determined using the life expectancy of the
oldest designated beneficiary. Under the proposed regulations, whether
a full distribution is required also generally is determined using the
oldest of the designated beneficiaries.
The proposed regulations provided certain exceptions to these
general rules for multiple designated beneficiaries. Under one
exception, if the employee's beneficiary is an applicable multi-
beneficiary trust, then only the disabled and chronically ill
beneficiaries of the trust are taken into account in determining the
oldest designated beneficiary. Under a second exception, if any of the
employee's designated beneficiaries was a child of the employee who had
not yet reached the age of majority as of the date of the employee's
death, then, in applying the requirement to make a full distribution by
the tenth year following the death of the oldest eligible designated
beneficiary, only the employee's children who are designated
beneficiaries and who are under the age of majority as of the
employee's date of death were taken into account. Thus, in a situation
involving one or more designated beneficiaries who are children of the
employee under the age of majority as of the date of the employee's
death and one or more older designated beneficiaries, the death of an
older designated beneficiary would not result in a requirement to pay a
full distribution before the oldest of those children attains the age
of majority plus 10 years.\13\
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\13\ This rule works in conjunction with the rule in Sec.
1.401(a)(9)-4(e)(2)(ii), which provides that if any of the
employee's designated beneficiaries is an eligible designated
beneficiary because the beneficiary is the child of the employee who
had not reached the age of majority at the time of the employee's
death, then the employee is treated as having an eligible designated
beneficiary even if the employee has other designated beneficiaries
who are not eligible designated beneficiaries. Thus, if the employee
has both an eligible designated beneficiary who is a minor child of
the employee and an older designated beneficiary, annual
distributions may continue until the minor child reaches the age of
majority plus 10 years.
---------------------------------------------------------------------------
One commenter raised the concern that, if two of the employee's
children are eligible designated beneficiaries, the rules in the
proposed regulations would result in a requirement to pay the balance
of the employee's account upon the attainment of the age of majority
plus 10 years by the older of those children. To address this
situation, the final regulations provide that, in the case described in
this paragraph, a full distribution is not required until ten years
after the youngest of the employee's children who are designated
beneficiaries attains the age of majority (or, if earlier, ten years
after the last of those minor children dies).
4. Treatment of Designated Roth Accounts
These final regulations provide that, in accordance with section
325 of the SECURE 2.0 Act, when determining the account balance subject
to section 401(a)(9) of the Code for distribution calendar years up to
and including the calendar year including the employee's date of death,
amounts held by the employee in a designated Roth account (as described
in section 402A(b)(2)) are not taken into account. These regulations
reserve a paragraph for rules regarding how distributions from a
designated Roth account are treated for purposes of section 401(a)(9)
that are included in a notice of proposed rulemaking (REG-103529-23) in
the Proposed Rules section of this issue of the Federal Register.
5. Disregard of Certain Distributions
The proposed regulations updated the list of amounts of
distributions and deemed distributions that are not taken into account
in determining whether the required minimum distribution has been made
for a calendar year. Under the proposed regulations, that list was
implemented by a cross-reference to a list of amounts in proposed Sec.
1.402(c)-2(c)(3) (relating to amounts that are not treated as eligible
rollover distributions). The effect of the new cross-reference was to
add the following items to the list of amounts that are disregarded for
purposes of determining whether the required minimum distribution has
been made from a defined contribution plan: prohibited allocations that
are treated as deemed distributions pursuant to section 409(p);
distributions of premiums for health and accident insurance under Sec.
1.402(a)-1(e)(1)(i); amounts treated as distributed with respect to
collectibles pursuant to section 408(m); and distributions that are
permissible withdrawals from an eligible automatic contribution
arrangement within the meaning of section 414(w).
These exclusions are reflected in the final regulations with minor
language changes. However, consistent with requests made by commenters,
the final regulations clarify that the disregard for a distribution of
premiums for health and accident insurance does not include a
distribution described in section 402(l) (that is, certain
distributions with respect to eligible retired public safety officers
from governmental plans that are used to pay qualified health insurance
premiums).
The final regulations reserve a paragraph for the treatment of a
corrective distribution under section 4974(e) (that is, a distribution
of a prior year's missed required minimum distribution within the
statutory correction window that results in a reduction in the excise
tax rate for the missed required minimum distribution) or Sec.
54.4974-1(g)(2) (relating to the automatic waiver of the excise tax for
a missed required minimum distribution for the year of an individual's
death). These rules are included in a notice of proposed rulemaking
(REG-103529-23) in the Proposed Rules section of this issue of the
Federal Register.
F. Section 1.401(a)(9)-6--Required Minimum Distributions From Defined
Benefit Plans and Annuity Contracts
Section 1.401(a)(9)-6 provides rules for required minimum
distributions from defined benefit plans and from annuity contracts
(including annuity contracts that are used to pay benefits under a
defined contribution plan). These rules are based on the 2004 final
regulations and are updated to reflect the amendments to section
401(a)(9) of the Code made by various provisions of the SECURE 2.0 Act.
1. Rules Applicable to Defined Benefit Plans
The proposed regulations, like the 2004 final regulations,
reflected the exceptions from the requirements of section
401(a)(9)(C)(ii) and (iii) provided under section 401(a)(9)(C)(iv) for
governmental plans and church plans. Section 401(a)(9)(C)(iv) specifies
that for purposes of these exceptions, a church plan is a plan
maintained by a church for church employees, and the term church means
any church as defined in section 3121(w)(3)(A) or any qualified church-
controlled organization as defined in section 3121(w)(3)(B). The
proposed regulations provided that, for this purpose, the determination
of whether an employee is a church employee is made without regard to
section 414(e)(3)(B).
One commenter requested that the final regulations provide that the
rules under section 414(e)(3)(B) that treat certain individuals as
employees of a church apply generally for the purposes of determining
whether a plan is maintained for church employees under section
401(a)(9)(C)(iv). The Treasury Department and the IRS determined that
such a rule would yield an inappropriate result in the case of a plan
for employees of a tax-exempt organization that is associated with a
church unless the organization is a qualified church-controlled
[[Page 58899]]
organization. However, it would be appropriate to treat a plan for
self-employed individuals who are licensed ministers of a church as a
plan maintained by a church for employees of a church. Accordingly,
these regulations provide that the determination of whether an
individual is an employee of a church or qualified church-controlled
organization is made in accordance with the rules of section
414(e)(3)(B) other than section 414(e)(3)(B)(ii). Thus, a licensed
minister who is self-employed but is treated as an employee of a church
under section 414(e)(3)(B)(i) is considered an employee of a church for
purposes of section 401(a)(9)(C)(iv).
The commenter also requested that the exception apply to a multiple
employer plan covering employees of a church or a qualified church-
controlled organization that also covers other employees. These
regulations do not adopt that rule. Instead, they provide that a plan
is excepted from the actuarial increase requirement only if at least 85
percent of the individuals covered by the plan are employees of a
church or a qualified church-controlled organization. Thus, if the
employees in the plan who are not employees of a church or a qualified
church-controlled organization constitute more than 15 percent of the
covered employees, then the plan is not treated as a church plan that
is exempted from the requirement under section 401(a)(9)(C)(iii) to
provide an actuarial increase. However, these regulations provide that
this actuarial increase requirement does not apply to benefits accrued
by an individual that are attributable to service the individual
performs as an employee of a church or a qualified church-controlled
organization (including service performed as an employee described in
section 414(e)(3)(B)(i)).
Another commenter asked whether the requirement to apply an
actuarial increase applies to benefits that are not vested. These
regulations provide that the actuarial increase applies to benefits
that are accrued but treat benefits that are not vested as accruing
when they become vested. Accordingly, benefits that are not vested are
not required to be actuarially increased until they become vested.
2. Applicability of Section 401(a)(9)(H) to Annuity Contracts
One commentor noted that the language in Sec. 1.401(a)(9)-5(a)(5)
of the proposed regulations requiring that an annuity contract
purchased under a defined contribution plan satisfy the requirements of
Sec. 1.401(a)(9)-5(e) (implementing the requirements of section
401(a)(9)(E)(iii), (H)(ii) and (iii) that the employee's entire
interest be distributed by the end of a specified calendar year) was
not clear (in that the rule in Sec. 1.401(a)(9)-5(e) of the proposed
regulations referred to the situation in which an employee's benefit is
in the form of an individual account). The final regulations clarify
that, if an annuity contract is purchased under a defined contribution
plan, or the annuity contract is otherwise subject to section
401(a)(9)(H), then payments under that annuity contract are not
permitted to extend past the calendar year described in Sec.
1.401(a)(9)-5(e).\14\
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\14\ One commenter asked for clarification of whether section
401(a)(9)(H) applies in the case of an annuity provided under a
defined benefit plan that is attributable to a direct rollover from
a defined contribution plan (as described in Rev. Rul. 2012-4, 2012-
8 IRB 386). In that case, because the annuity is provided under a
defined benefit plan, it is not subject to section 401(a)(9)(H).
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Several commenters observed that, as of the annuity starting date,
a participant may have elected to receive a joint and survivor annuity
benefit under an annuity contract with the spouse as survivor
annuitant, and that the participant and spouse may divorce after the
annuity starting date. Commenters asserted that, in such a case, there
should be no change in the terms of the annuity contract on account of
the divorce (as would have been required under the proposed regulations
if the former spouse were no longer considered to be a spouse and were
not an alternate payee under a qualified domestic relations order
(QDRO) issued in accordance with section 414(p) specifying that the
former spouse is to be treated as the surviving spouse for purposes of
the annuity contract). Consistent with these comments, the final
regulations provide that, for a designated beneficiary who is a
contingent annuitant under an annuity contract, the determination of
whether that beneficiary is an eligible designated beneficiary is made
as of the annuity starting date. Thus, if the employee elects a joint
and survivor annuity with the employee's spouse as the contingent
annuitant, and they divorce after the annuity starting date, then the
former spouse who is a designated beneficiary and the contingent
annuitant under the contract is treated as an eligible designated
beneficiary without regard to whether there is a QDRO. This approach is
consistent with the requirements of rules of sections 401(a)(11) and
417, and Sec. 1.401(a)-20, Q&A-25(b)(3), under which the spouse as of
the annuity starting date continues to be entitled to a qualified joint
and survivor annuity elected under the plan if the participant and the
spouse divorce after the annuity starting date.
3. Increasing Payments
Similar to the 2004 final regulations, the proposed regulations
provided that all payments under a defined benefit plan or annuity
contract must be nonincreasing, subject to a number of exceptions. The
proposed regulations retained the exceptions in the 2004 final
regulations and added further exceptions under which annuity payments
under a defined benefit plan or annuity contract may increase. Under
the proposed regulations, the permitted increases in annuity payments
were different for defined benefit plans and annuity contracts issued
by insurance carriers. In the case of an annuity contract, certain of
the exceptions to the nonincreasing rule in the proposed regulations
applied only if the total future expected payments under the contract
exceed the total value being annuitized (that is, the value of the
employee's entire interest being annuitized).
One commenter requested that each of the annuity payment increases
permitted under a defined benefit plan (such as a fixed percentage
increase in annuity payments that is less than 5 percent) be permitted
for annuity contracts without regard to the condition that the total
future expected payments exceed the total value being annuitized.
Consistent with this comment, and in accordance with section
401(a)(9)(J)(i) (as added to the Code by section 201 of the SECURE 2.0
Act), these regulations provide that the permitted increases in annuity
payments under a defined benefit plan generally are also available
under an annuity contract and eliminate the condition on increases
under an annuity contract that the total future expected payments under
the contract exceed the total value being annuitized. Thus, the
permitted increases in annuity payments under an annuity contract are
expanded under the regulations to include increases by a constant
percentage, applied not less frequently than annually, at a rate that
is less than 5 percent per year. However, consistent with the
simplification of the permitted annuity increases under section
401(a)(9)(J), an increase of 5 percent or more per year is not
permitted for an annuity contract under the final regulations, even if
the annuity payments could have met the condition for that increase
under the 2004 regulations.
These regulations also include modifications to the permitted
increases for annuity contracts to reflect the
[[Page 58900]]
addition of section 401(a)(9)(J)(ii) through (iv) to the Code. Thus,
the following increases in annuity payments are permitted: (1) an
increase as a result of the shortening of the payment period with
respect to the annuity or a full or partial commutation of the future
annuity payments, provided that the amount of the payment pursuant to
the commutation is determined using reasonable actuarial methods and
assumptions, as determined in good faith by the issuer of the contract;
\15\ (2) a payment of an amount that is in the nature of a dividend,
provided that the issuer of the contract uses reasonable actuarial
methods and assumptions, as determined in good faith, when calculating
the initial annuity payments, the issuer's experience with respect to
those factors, and the amount of the dividend or similar payment; and
(3) a final payment upon death that does not exceed the amount by which
the total consideration paid for the contract exceeds the aggregate
amount of prior distributions under the contract.
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\15\ This commutation may be needed to comply with the
requirement that, if the employee's designated beneficiary is not an
eligible designated beneficiary, then payments under the annuity
contract may not extend beyond the calendar year that includes the
tenth anniversary of the date of the employee's death.
---------------------------------------------------------------------------
In addition, these regulations provide rules that apply if the
annuity contract purchased under a defined benefit plan is merely
providing the same benefits that would have been payable under the
defined benefit plan if an annuity contract had not been purchased.\16\
In that case, the annuity contract is permitted to have the same
increases in annuity payments as under the qualified defined benefit
rules. This could occur, for example, if an annuity contract is
purchased under a terminating defined benefit plan.
---------------------------------------------------------------------------
\16\ The final regulations also make a change to Sec.
1.401(a)(9)-6(d) to broaden the applicability of the annuity rules
by removing the requirement that an annuity be purchased with the
employee's benefit under the plan.
---------------------------------------------------------------------------
One commenter requested additional guidance as to whether section
401(a)(9) prohibits a plan from offering a period of time during which
a participant or beneficiary may elect to receive a lump sum payment
instead of future annuity payments. These regulations do not address
this issue. As described in Notice 2019-18, 2019-13 IRB 915, the
Treasury Department and the IRS will continue to study the issue of
retiree lump sum windows. This study will take into account the
enactment of section 342 of the SECURE 2.0 Act.
4. Qualifying Longevity Annuity Contracts
In 2014, the Treasury Department and the IRS amended the
regulations under section 401(a)(9) to provide special rules that apply
if a deferred annuity that commences annuity payments at an advanced
age is purchased with a portion of the employee's interest under a
defined contribution plan. See 79 FR 37633. Under those rules, if the
annuity contract satisfies certain requirements, then the contract is a
QLAC and the value of that QLAC is excluded from the account balance
under the plan. Those requirements include that: (1) distributions
commence not later than age 85; (2) the premiums paid with respect to
all contracts intended to be QLACs not exceed an inflation-adjusted
$125,000 (dollar limitation) or 25 percent of the employee's account
balance (percentage limitation); and (3) the contract not make
available any commutation benefit, cash surrender value, or other
similar feature.
The proposed regulations retained these premium limitations for
QLAC status. However, in accordance with section 202(a)(1) and (2) of
the SECURE 2.0 Act, the final regulations eliminate the percentage
limitation and increase the initial amount of the inflation-adjusted
dollar limitation from $125,000 to $200,000. These higher limits apply
to an annuity contract that was purchased before December 29, 2022, and
that satisfied the requirements to be a QLAC as of that date. Thus, the
contract need not be exchanged for another annuity contract on or after
that date in order for the employee to take advantage of the higher
premium limits under section 202(a)(1) and (2) of the SECURE 2.0 Act.
The proposed regulations included an exception to the requirement
that the contract not include any commutation benefit, cash surrender
value, or similar feature by permitting such a feature before the
required beginning date. This change was proposed so that if a plan's
investment options include a series of target date funds to which the
relief under Notice 2014-66, 2014-46 IRB 820, applies,\17\ those target
date funds could include QLACs among their assets. Commenters observed
that some State laws prohibit the purchase of an annuity contract that
does not provide for a right to rescind the contract within a specified
short period of time and requested that such a rescission right be
accommodated for a QLAC. Consistent with this comment and as instructed
by section 202(a)(4) of the SECURE 2.0 Act, the final regulations add
an exception under which the contract may provide a right to rescind
the contract within a period not exceeding 90 days after purchase.
---------------------------------------------------------------------------
\17\ Notice 2014-66 provides relief under section 401(a)(4) of
the Code to enable plans to provide lifetime income by offering, as
investment options, a series of target date funds that include
deferred annuities among their assets, even if some of the target
date funds within the series are available only to older
participants.
---------------------------------------------------------------------------
One commenter asked how an issuer of a QLAC should report that a
taxpayer utilized the option to commute a contract before the required
beginning date. The final regulations do not modify the reporting
required under Sec. 1.6047-2 and do not provide for a reversal of any
premiums previously paid for a contract that is commuted prior to the
required beginning date or rescinded within a short period after
purchase. This is because the purpose of these exceptions is to
accommodate the possibility that the contract will permit the
commutation or recission and not to accommodate an employee who chooses
to commute or rescind the contract and later decides to purchase
another QLAC.
The proposed regulations provided that, for purposes of applying
the limitation on premiums used to purchase a QLAC, if another
insurance contract is exchanged for a QLAC then the fair market value
of the exchanged contract will be treated as a premium paid for the
QLAC. One commenter suggested that if an insurance contract is
surrendered for its cash surrender value, the surrender extinguishes
all benefits and other characteristics of the contract, and the cash is
used to purchase a QLAC, then only the cash from the surrendered
contract should be treated as a premium paid for the QLAC. These
regulations include that modification to the rule.
One commenter asked for continued treatment of a former spouse as a
spouse if the participant and spouse divorce after the QLAC is
purchased but before the annuity starting date in the absence of a QDRO
providing for this treatment. Consistent with this comment and as
instructed in section 202(a)(3) of the SECURE 2.0 Act, these final
regulations provide that the payment of survivor benefits to the
employee's former spouse under an annuity contract will not cause the
contract to fail to satisfy the requirements to be treated as a QLAC
merely because the divorce between the employee and that former spouse
occurred after the contract is purchased, provided that a QDRO
satisfying certain requirements has been issued in connection with the
divorce.
Specifically, the QDRO must: (1) provide that the former spouse is
entitled to the survivor benefits under the contract; (2) provide that
the former
[[Page 58901]]
spouse is treated as a surviving spouse for purposes of the contract;
(3) not modify the treatment of the former spouse as the beneficiary
under the contract who is entitled to the survivor benefits; or (4) not
modify the treatment of the former spouse as the measuring life for the
survivor benefits under the contract.\18\
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\18\ The Treasury Department and the IRS remind taxpayers that
in the case of a QDRO that does not provide that either the former
spouse is entitled to the survivor benefits under the contract or
that the former spouse is treated as a surviving spouse for purposes
of the contract, there is a risk that the spousal rights rules of
sections 401(a)(11) and 417 will be violated if the employee
remarries.
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Section 202(a)(3) of the SECURE 2.0 Act provides for a comparable
rule in the case of a plan not subject to the QDRO rules of section
414(p) of the Code or section 206(d) of the Employee Retirement Income
Security Act of 1974, Public Law 93-406, 88 Stat. 829, as amended
(ERISA). These regulations reserve a paragraph for this comparable
rule, which is included in a notice of proposed rulemaking (REG-103529-
23) in the Proposed Rules section of this issue of the Federal
Register.
G. Section 1.401(a)(9)-7--Rollovers and Transfers
As was the case for the proposed regulations, Sec. 1.401(a)(9)-7
retains the rollover and transfer rules that are in the 2002 final
regulations.
H. Section 1.401(a)(9)-8--Special Rules
Section 1.401(a)(9)-8 provides special rules applicable to
satisfying the minimum distribution requirement.
The proposed regulations retained the rules from the 2002 final
regulations under which section 401(a)(9) may be applied separately
with respect to the separate interests of each of the employee's
beneficiaries under a plan. The final regulations clarify that the
separate application of section 401(a)(9) only applies for calendar
years after the death of the employee (and thus, does not apply for the
calendar year of the employee's death) and adds expenses to the list of
items that must be allocated in a reasonable and consistent manner
among the separate accounts.
The final regulations also restore flexibility from Sec.
1.401(a)(9)-5 in the 2002 final regulations relating to the required
minimum distribution for the calendar year of the employee's death by
providing that a required minimum distribution must be paid to ``any
beneficiary'' in the year of death rather than to ``the beneficiary.''
Thus, for example, if an employee who is required to take a
distribution in a calendar year dies before taking that distribution
and has named more than one designated beneficiary, then any of those
beneficiaries can satisfy the employee's requirement to take a
distribution in that calendar year (as opposed to each of the
beneficiaries being required to take a proportional share of the unpaid
amount).
The proposed regulations generally retained the separate account
rules applicable to beneficiaries after the death of the employee that
were adopted in the 2002 final regulations, including the rule that
prohibits separate application of section 401(a)(9) to separate
interests in a trust. However, in light of the enactment of special
rules that apply to an applicable multi-beneficiary trust described in
section 401(a)(9)(H)(iv)(I) (a trust with at least one disabled or
chronically ill beneficiary that provides that it is to be immediately
divided upon the death of the employee into separate trusts for each
beneficiary), the proposed regulations provided an exception to that
prohibition that would permit separate application of section 401(a)(9)
to those separate trusts.
Consistent with requests made by commenters, the final regulations
expand the exception in the proposed regulations to permit separate
application of section 401(a)(9) to the separate interests of
beneficiaries of a see-through trust if certain requirements are met.
This exception applies to the separate interests of beneficiaries of a
see-through trust if the terms of that trust provide that it is to be
divided immediately upon the death of the employee into separate shares
for one or more trust beneficiaries (without regard to whether any of
the beneficiaries are disabled or chronically ill).
For this purpose, the final regulations provide that a trust is
divided immediately upon the death of the employee into separate shares
for one or more trust beneficiaries only if the trust is terminated,
the separate interests of the trust beneficiaries are held in separate
trusts, and there is no discretion as to the extent to which the
separate trusts will be entitled to receive post-death distributions
attributable to the employee's interest in the plan. In addition, the
final regulations clarify that a trust does not fail to be divided
immediately upon the death of the employee merely because there are
administrative delays between the date of the employee's death and the
date on which the trust actually is divided and terminated provided
that any amounts received by the trust during this period are allocated
as if the trust had been divided on the date of the employee's death.
II. Section 402(c) Regulations
The proposed regulations provided updates to existing rules of
Sec. 1.402(c)-2 that reflect certain statutory amendments made to
section 402(c) since the regulations were issued in 1995. Those
amendments are described in the Background section of this preamble
under the heading Section 402(c)--Rollovers.
A. Special Rule for Certain Distributions to Surviving Spouses
The proposed regulations provided a new rule to limit the ability
of a surviving spouse to use the 5-year rule or the 10-year rule to
defer distributions beyond the calendar year that annual distributions
would have been required to commence and then, after that calendar
year, commence annual distributions. This rule, which applied in
limited circumstances, would have been used to determine, with respect
to a distribution to the employee's surviving spouse to whom the 5-year
rule or 10-year rule applies, the portion of that distribution that is
treated as a required minimum distribution under section 401(a)(9) (and
thus is not an eligible rollover distribution). This special rule,
which treated a portion of a distribution made before the last year of
the 5-year or 10-year period (whichever applies to the spouse) as a
required minimum distribution, applied if: (1) the distribution was
made in or after the calendar year the surviving spouse attains age 72;
and (2) the surviving spouse rolled over some or all of the
distribution to an eligible retirement plan under which the surviving
spouse is not treated as the beneficiary of the employee.
Under this special rule, the portion of the distribution that is
treated as a required minimum distribution was the cumulative total,
over a span of years, of the hypothetical required minimum distribution
for each year had the life expectancy rule applied (or, in the case of
a defined benefit plan, had the annuity payment rule applied), reduced
by any amounts actually distributed to the surviving spouse during that
span of years. The span of years began with the first applicable year
(defined as the later of the calendar year in which the surviving
spouse reaches age 72 and the calendar year in which the employee would
have reached age 72) and ended in the year of distribution.
In calculating the hypothetical required minimum distributions from
a defined contribution plan for a calendar year under this special rule
(the determination year), the proposed regulations provided that an
adjusted
[[Page 58902]]
account balance would be used. The adjusted account balance for a
calendar year was determined by reducing the account balance that
normally would be used to determine the required minimum distribution
for that determination year by the excess (if any) of: (1) the sum of
the hypothetical required minimum distributions beginning with the
first applicable year and ending with the calendar year preceding the
calendar year of the determination, over (2) the distributions actually
made to the surviving spouse during those calendar years.
Several commenters requested that the final regulations eliminate
the special rule for distributions to surviving spouses. In support of
that request, commenters point to the absence of a similar rule in the
statute (both pre- and post-SECURE Act). Commenters also argued that in
the case of an individual with no financial advisor, determining the
amount of the hypothetical required minimum distribution that is
ineligible for rollover would be difficult because it requires complex
calculations based on amounts actually distributed in prior years and
reduced account balances for each year past what would have been the
spouse's required beginning date that are based on the current account
balance. Other commenters argued that plan administrators would not
have the knowledge of whether a beneficiary was rolling over a
distribution to their own IRA or to a beneficiary IRA and accordingly,
what portion of that distribution is an eligible rollover distribution.
As a result, the plan administrator would not know the proper
withholding amount for the distribution.
The final regulations do not eliminate this special rule. The
Treasury Department and the IRS concluded that this rule will prevent a
spouse who will be taking annual distributions from effectively
delaying the commencement of those distributions for a number of years
beyond the spouse's required beginning date (or, if later, the year in
which the employee would have reached the applicable age). The
regulations accomplish this result by requiring the spouse to catch up
on distributions that would have been made had the spouse been taking
annual life expectancy payments starting in the year the spouse reached
the applicable age (or, if later, the year in which the employee would
have reached the applicable age). While there was no similar rule in
effect prior to the enactment of section 401(a)(9)(H), the potential
number of years that the commencement of life expectancy distributions
may be delayed is much higher as a result of the expansion of the 5-
year rule into a 10-year rule.
Although this special rule is not eliminated, to reflect that it is
intended only to prevent the lengthened delay in commencement that
resulted from the expansion of the 5-year rule into a 10-year rule, the
final regulations provide that this rule does not apply in the case of
a surviving spouse who is subject to the 5-year rule. Accordingly, this
rule will apply only in the case of surviving spouse who is the
beneficiary of an employee in a defined contribution plan. In addition,
the final regulations provide that the hypothetical required minimum
distribution is calculated assuming that the election described in
Sec. 1.401(a)(9)-5(g)(3)(i) is in effect for that spouse.\19\
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\19\ Commenters requested an expansion of the numerical example
of the application of the rules for determining the amount of a
surviving spouse's distribution that is a required minimum
distribution and therefore cannot be rolled over that were included
in proposed Sec. 1.402(c)-2(j)(3)(iii) Because of the change to the
calculation of the hypothetical required minimum distributions to
assume that Sec. 1.401(a)(9)-5(g)(3)(i) is in effect for the
surviving spouse, a paragraph is reserved for the example in these
regulations, and the numerical example is included in a notice of
proposed rulemaking (REG-103529-23) in the Proposed Rules section of
this issue of the Federal Register.
---------------------------------------------------------------------------
The final regulations also provide that plan administrators may
make reasonable assumptions related to distributions to the surviving
spouse. Specifically, a plan administrator may assume that a surviving
spouse to whom this special rule applies will roll over only the
portion of the distribution that is eligible for rollover (in
accordance with this rule) to an eligible retirement plan under which
that spouse is not treated as the beneficiary of the employee. Thus, a
plan administrator may treat that portion of the distribution as an
eligible rollover distribution for purposes of sections 401(a)(31) and
3405(c). However, pursuant to Sec. 1.402(c)-2(k)(2), a surviving
spouse may roll over the entire distribution to an individual
retirement plan under which that spouse is treated as the beneficiary
of the employee.
B. Distributions to Non-Spousal Beneficiaries
Like the proposed regulations, these regulations provide that a
designated beneficiary who is not a spouse may elect, under section
402(c)(11), to have any portion of a distribution that fits within the
definition of an eligible rollover distribution transferred via a
direct trustee-to-trustee transfer to an IRA established for the
purpose of receiving that distribution. If that transfer is made
pursuant to section 402(c)(11), the distribution is treated as an
eligible rollover distribution; the IRA is treated as an inherited
account or annuity (as defined in section 408(d)(3)(C), so that
distributions from the inherited IRA are not eligible to be rolled
over); and the IRA is subject to section 401(a)(9)(B) (other than
section 401(a)(9)(B)(iv)). Consistent with a request from a commenter,
these regulations clarify that a see-through trust may be treated as a
designated beneficiary for purposes of section 402(c)(11)(A).
If the distribution is made directly to a beneficiary who is not
the surviving spouse of the employee (instead of a direct trustee-to-
trustee transfer to an inherited IRA), then these regulations provide
that the distribution is not an eligible rollover distribution for
purposes of section 402(c)(4) (that is, it cannot be rolled over).
However, in response to comments requesting clarity on the issue, these
regulations provide that the distribution described in the preceding
sentence is generally still subject to 20-percent withholding under
section 3405(c) (which sets forth the withholding requirements for
eligible rollover distributions as defined in section 402(f)(2)(A)). In
this case, 20-percent withholding is required because section
402(f)(2)(A) specifies that the term ``eligible rollover distribution''
has the same meaning as in section 402(c)(4) but also includes a
distribution to a non-spouse designated beneficiary that would be
treated as an eligible rollover distribution if the requirements of
section 402(c)(11) were satisfied. Under this definition, the amount
that would be an eligible rollover distribution if the requirements of
section 402(c)(11) were satisfied excludes amounts treated as a
required minimum distribution.
III. Section 403(b) Regulations
The final regulations regarding section 403(b) plans are the same
as proposed, except for a few changes. The final regulations clarify
that the rule under which the minimum distribution requirements of
section 401(a)(9) are applied to section 403(b) contracts in accordance
with the provisions in Sec. 1.408-8 refers to the provisions in Sec.
1.408-8 that apply to an IRA that is not a Roth IRA. With respect to a
designated Roth account in a section 403(b) contract, the final
regulations reflect the provisions of section 325 of the SECURE 2.0 Act
under which no required minimum distributions are due from a designated
Roth account during the lifetime of the employee. Under the final
regulations, the rules of Sec. 1.401(a)(9)-3(a)(2) (which provides
[[Page 58903]]
that if an employee's entire interest under a defined contribution plan
is in a designated Roth account, then the employee is treated as having
died before the required beginning date), Sec. 1.401(a)(9)-5(b)(3)
(which excludes amounts held in a designated Roth account from the
employee's account balance during the employee's lifetime), and Sec.
1.401(a)(9)-5(g)(2)(iii) (treatment of distributions from designated
Roth accounts, which is reserved in these regulations) apply, rather
than the rules of Sec. 1.408-8(b)(1)(ii) that apply to a Roth IRA.
Lastly, the final regulations provide that the changes to Sec.
1.403(b)-6 apply for purposes of determining required minimum
distributions for calendar years beginning on or after January 1, 2025.
In the preamble to the proposed regulations, the Treasury
Department and the IRS requested comments on possible changes to the
required minimum distribution rules for section 403(b) plans, so that
they would more closely follow the required minimum distribution rules
for qualified plans (as opposed to IRAs). Commenters made various
suggestions in response to this request and requested that any of those
changes not be implemented in these final regulations. The Treasury
Department and IRS are considering these comments, and any further
changes relating to the required minimum distribution rules for section
403(b) plans will be set forth in separate guidance.
IV. Section 1.408-8--Distribution Requirements for IRAs
These regulations amend Sec. 1.408-8 (which sets forth the
required minimum distribution rules for IRAs) to implement the changes
made to section 401(a)(9) under the SECURE Act and the SECURE 2.0 Act.
Generally, the minimum distribution required from an individual
retirement account is determined in accordance with the rules of Sec.
1.401(a)(9)-5 and the minimum distribution required from an individual
retirement annuity is determined in accordance with the rules of Sec.
1.401(a)(9)-6 (including Sec. 1.401(a)(9)-6(d)(2)).
Like the proposed regulations, these final regulations retain the
rules from the 2002 regulations under which the required minimum
distribution from one IRA is permitted to be distributed from another
IRA in order to satisfy section 401(a)(9), subject to the certain
restrictions involving inherited IRAs and Roth IRAs. To implement the
statutory instruction under section 204(c) of the SECURE 2.0 Act, these
final regulations provide that, subject to the same limitations that
apply to aggregation of IRAs generally, an individual who holds an IRA
that is an annuity contract described in section 408(b) may elect to
aggregate that IRA with one or more IRAs with account balances that the
individual holds and apply the optional aggregation rule of Sec.
1.401(a)(9)-5(a)(5)(iv) (described in section I.E.2 of this Summary of
Comments and Explanation of Revisions) with respect to the annuity
contract and the account balances under those IRAs as if the account
balances were the remaining account balances following the purchase of
the annuity contract with a portion of those account balances.
In addition, whether a designated beneficiary of an IRA owner is an
eligible designated beneficiary and whether the beneficiaries of a
trust are treated as beneficiaries of the IRA owner is generally
determined in accordance with Sec. 1.401(a)(9)-4. Consistent with
requests made by commenters, these regulations provide that, in
determining whether an IRA owner's designated beneficiary is disabled
or chronically ill within the meaning of Sec. Sec. 1.401(a)(9)-4(e)(4)
and (5), respectively, or whether the beneficiaries of a trust are
treated as beneficiaries of the IRA owner, the required documentation
described in Sec. 1.401(a)(9)-4(e)(7), or Sec. 1.401(a)(9)-4(h),
respectively, need not be provided to the IRA custodian, issuer, or
trustee.
The proposed regulations generally incorporated the rules in Notice
2007-7, Q&As-17 and 19 (relating to the carryover of the method of
determining required minimum distributions from a plan to a receiving
IRA when a beneficiary is making a transfer described in section
402(c)(11)) and extended those rules to provide comparable treatment to
a surviving spouse. These rules relating to the distribution method of
the receiving IRA did not apply to a surviving spouse when that spouse
is rolling over a distribution to the spouse's own account in a
qualified plan or to the spouse's own IRA (because distributions would
then be made in accordance with section 401(a)(9)(A) instead of section
401(a)(9)(B)). In that case, the proposed regulations provided that the
amount of the distribution treated as a required minimum distribution,
and thus not eligible to be rolled over, is determined in accordance
with Sec. 1.402(c)-2(j) (including the rule under which in certain
circumstances a spouse who elects the 10-year rule is required to treat
a portion of any distribution as a required minimum distribution as
described in section II.A of this Summary of Comments and Explanation
of Revisions).
To coordinate with the rules in Sec. 1.402(c)-2(j), the proposed
regulations added a deadline for the election under which a surviving
spouse may elect to treat a decedent's IRA as the spouse's own.
Specifically, a surviving spouse must make that election by the later
of (1) the end of the calendar year in which the surviving spouse
reaches age 72, and (2) the end of the calendar year following the
calendar year of the IRA owner's death. Under the proposed regulations,
if the surviving spouse were to miss that deadline, the surviving
spouse still would be permitted to roll over distributions to the
spouse's own IRA but would be subject to the special rule on the catch-
up of hypothetical required minimum distributions described in section
II of this Summary of Comments and Explanation of Revisions.
Consistent with requests made by commenters, the final regulations
eliminate the deadline described in the preceding paragraph. Instead,
these regulations provide a timing rule that applies on a yearly basis
and only if the special rule on the catch-up of hypothetical required
minimum distributions would apply to the IRA owner's surviving spouse
had a distribution been made directly to the surviving spouse in the
calendar year. In addition, these regulations provide that, even if the
timing rule otherwise applies, a surviving spouse may still make an
election to treat an IRA as the surviving spouse's own IRA, but only if
that election does not apply to amounts in the IRA that would be
treated as required minimum distributions pursuant to Sec. 1.402(c)-
2(j)(4)(ii) had they been distributed in that calendar year. Thus, the
election can be made only in a calendar year after the amounts treated
as required minimum distributions under Sec. 1.402(c)-2(j)(4)(ii) for
that calendar year have been distributed from the IRA.
These regulations also clarify the rules for the beneficiaries of
an owner of multiple IRAs that are aggregated for purposes of
satisfying the required minimum distribution rules. The new rules apply
in the case of an IRA owner who dies before taking the total required
minimum distribution in a calendar year (that is, there is a shortfall)
if the beneficiary designations with respect to all of those IRAs are
not identical. In that case, each of the owner's IRAs is subject to a
requirement to distribute a proportionate share of the shortfall to a
beneficiary of that IRA. This allocation of the proportionate share of
the shortfall to a particular IRA is made
[[Page 58904]]
without regard to whether some of the required minimum distribution for
the calendar year was already made to the IRA owner from that IRA.
Similar rules apply in the case of a beneficiary of multiple IRAs that
are aggregated for purposes of satisfying the required minimum
distribution rules if a required minimum distribution is due for the
calendar year of the beneficiary's death to the extent that the amount
was not distributed to the beneficiary.
The proposed regulations provided that amounts that are treated as
distributed pursuant to section 408(e) (relating to the loss of tax
exemption when an IRA owner engages in a prohibited transaction or
borrows any money under an individual retirement annuity, and the
deemed distribution of amounts when an individual uses a portion of an
individual retirement account as security for a loan) or amounts that
are deemed to be distributed with respect to collectibles pursuant to
section 408(m) may not be used to satisfy the required minimum
distribution for a calendar year. Several commenters argued that final
regulations should not exclude amounts treated as distributed under
those sections for purposes of determining whether section 401(a)(9)
has been satisfied. The commenters asserted that in this case, the IRA
account balance could be zero and without any assets from which to take
a required minimum distribution, the IRA owner would be required to pay
an excise tax.
The final regulations retain the rules from the proposed
regulations with minor changes. However, the Treasury Department and
the IRS remind taxpayers that, pursuant to Sec. 1.401(a)(9)-5(a)(1),
the required minimum distribution amount will never exceed the entire
account balance on the date of the distribution. Accordingly, because
section 408(e)(2)(B) and (3) reduces an IRA owner's account balance to
zero as of the first day of the taxable year, the required minimum
distribution for that calendar year would also be zero. By contrast,
section 408(e)(4) and (m) does not reduce an IRA owner's account
balance by the deemed distribution and accordingly, the amount of the
required minimum distribution for a calendar year is not affected by
the deemed distribution. In that case, allowing the deemed distribution
that results from the use of the IRA to secure a loan or to purchase a
collectible to be used to satisfy the requirement to take a minimum
distribution would reduce the deterrent effect of the statutorily
specified tax consequence of those actions.
The proposed regulations provided that the limitation on premiums
paid for a QLAC purchased under an IRA is the lesser of a dollar
limitation and a percentage limitation. The percentage limitation in
the proposed regulations was 25-percent of the total of all IRA account
balances that an individual holds as the IRA owner (other than Roth
IRAs) as of December 31 of the calendar year preceding the date the
premium payment is made. Several commenters requested changes that
would address the issue of the percentage limitation in the case of a
taxpayer who has no IRAs other than a newly established IRA that
received a rollover from a qualified plan (because, in such a case, the
IRA did not have an account balance as of December 31 of the prior
calendar year and thus, the taxpayer would not be permitted to purchase
a QLAC with the assets of the IRA until the year after the year of the
rollover). However, section 202(a)(1) of the SECURE 2.0 Act eliminated
the percentage limitation. Accordingly, these final regulations provide
that the limitation on premiums is the dollar limitation provided for
in section 202(a)(2) of the SECURE 2.0 Act ($200,000, adjusted for
inflation).
V. Section 1.457-6(d)--Minimum Required Distributions for Eligible
Plans
Several comments were received asking whether the rules of section
401(a)(9)(H) apply to an eligible deferred compensation plan of a tax-
exempt entity. Section 401(a)(9)(H)(vi) provides that all eligible
retirement plans (as defined in section 402(c)(8)(B) (other than
certain defined benefit plans)) are treated as defined contribution
plans for purposes of applying the rules of section 401(a)(9)(H). This
provision does not provide an exhaustive list of the plans that are
treated as defined contribution plans for purposes of applying the
rules of section 401(a)(9)(H). Accordingly, the final regulations
clarify that, if an eligible deferred compensation plan is subject to
the rules of Sec. 1.401(a)(9)-5, then the plan must also satisfy the
rules of section 401(a)(9)(H) (without regard to whether the plan is
maintained by a tax-exempt entity).
VI. Section 54.4974-1--Excise Tax on Accumulations in Qualified
Retirement Plans
The proposed regulations provided for an automatic waiver of the
excise tax that applies in the case of an individual who had a minimum
distribution requirement in a calendar year and died in that calendar
year before satisfying that minimum distribution requirement. In this
situation, a beneficiary of the individual must satisfy the minimum
distribution requirement by the end of that calendar year. However, if
that beneficiary fails to satisfy the minimum distribution requirement
in that calendar year, then the proposed regulations provided that the
excise tax for that failure is automatically waived provided that the
beneficiary takes the missed required minimum distribution no later
than the tax filing deadline (including extensions thereof) for the
taxable year of that beneficiary that begins with or within that
calendar year. Consistent with requests made by commenters, the final
regulations extend the deadline for the beneficiary to take the missed
required minimum distribution and be eligible for the automatic waiver.
The new deadline is the later of the tax filing deadline for the
taxable year of the beneficiary that begins with or within the calendar
year in which the individual died and the end of the following calendar
year.
These regulations also reflect the amendments made to section 4974
by section 302(a) of the SECURE 2.0 Act effective for taxable years
beginning after December 29, 2022. In accordance with section 302(a) of
the SECURE 2.0 Act, these regulations provide that the tax imposed by
section 4974(a) of the Code generally is equal to 25 percent of the
amount by which the required minimum distribution exceeds the actual
amount distributed during the calendar year. In addition, these
regulations reflect section 4974(e) (which was added to the Code by
section 302(b) of the SECURE 2.0 Act) and provide that the excise tax
is reduced to 10 percent in the case of a taxpayer who, by the last day
of the correction window, receives a corrective distribution from the
qualified retirement plan or eligible deferred compensation plan of the
amount by which the required minimum distribution exceeds the actual
amount distributed during the calendar year from that plan and submits
a return reflecting the excise tax. For purposes of these regulations,
the correction window ends on the earliest of: (1) the date a notice of
deficiency under section 6212 with respect to the tax imposed by
section 4974(a) is mailed; (2) the date on which the tax imposed by
section 4974(a) is assessed; or (3) the last day of the second taxable
year that begins after the end of the taxable year in which the tax
under section 4974(a) is imposed.
In addition, these final regulations provide that if the minimum
distribution was required to be paid from a particular qualified
retirement plan or eligible deferred compensation
[[Page 58905]]
plan, then the corrective distribution must be made from that
particular qualified retirement plan or eligible deferred compensation
plan. However, if the requirement to take a minimum distribution could
have been satisfied by a payment from any one of a number of qualified
retirement plans (such as an individual retirement account under
section 408(a) or a section 403(b) plan), then the corrective
distribution may be made from any one of those qualified retirement
plans.
Applicability Dates
Amended Sec. Sec. 1.401(a)(9)-1 through 1.401(a)(9)-9, 1.403(b)-
6(e), and 1.408-8 apply for purposes of determining required minimum
distributions for calendar years beginning on or after January 1, 2025.
Amended Sec. 1.402(c)-2 applies for distributions made on or after
January 1, 2025. Amended Sec. 54.4974-1 applies for taxable years
beginning on or after January 1, 2025. For earlier years, taxpayers
must apply the preexisting final regulations, but taking into account a
reasonable, good faith interpretation of the amendments made by
sections 114 and 401 of the SECURE Act. Compliance with the proposed
regulations will satisfy that requirement. For the 2023 and 2024
distribution calendar years, taxpayers must also take into account a
reasonable, good faith interpretation of the amendments made by
sections 107, 201, 202, 204, and 337 of the SECURE 2.0 Act.
Special Analyses
I. Regulatory Planning and Review
Pursuant to the Memorandum of Agreement, Review of Treasury
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory
actions issued by the IRS are not subject to the requirements of
section 6 of Executive Order 12866, as amended. Therefore, a regulatory
impact assessment is not required.
II. Paperwork Reduction Act
The Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520) generally
requires that a Federal agency obtain the approval of the Office of
Management and Budget (OMB) before collecting information from the
public, whether such collection of information is mandatory, voluntary,
or required to obtain or retain a benefit. An agency may not conduct or
sponsor, and a person is not required to respond to, a collection of
information unless the collection of information displays a valid
control number.
These regulations include third-party disclosures and recordkeeping
requirements, in Sec. Sec. 1.401(a)(9)-3(b)(4)(iii) and (c)(5)(iii),
1.401(a)(9)-4(e)(7), and 1.401(a)(9)-4(h), that are required to
determine whether a beneficiary is an eligible designated beneficiary
entitled to distributions over the beneficiary's life expectancy and to
record the names of the taxpayer's beneficiaries under the trust. These
collections of information would generally be used by the IRS for tax
compliance purposes and by plan administrators to facilitate compliance
with the required minimum distribution requirements under section
401(a)(9). The likely respondents to these collections are
beneficiaries of employees participating in retirement plans (and, in
limited circumstances, the participating employees).
Sections 1.401(a)(9)-3(b)(4)(iii) and (c)(5)(iii) allow a plan to
permit an eligible designated beneficiary in that plan to elect between
the 5-year rule (or 10-year rule, if applicable) and life expectancy
rule in the case of an employee who dies before the employee's required
beginning date. This election only arises in the context of a plan (and
not an IRA) because the plan administrator will need that information
to satisfy the required minimum distribution requirements with respect
to the beneficiary. An IRA custodian has no obligation to ensure
compliance with the required minimum distribution rules, so there is no
need for a beneficiary of an IRA to file any type of election with the
custodian. Although the plan may provide that the employee may make
this election, it is expected that more commonly, the employee's
beneficiary will be the individual making the election. Moreover, the
plan will have specified a default method of payment to the beneficiary
in the absence of an election (so that the beneficiaries will not be
required to make an election).
Section 1.401(a)(9)-4(e)(7) requires a beneficiary to provide
documentation to a plan administrator showing that the beneficiary was
disabled or chronically ill as of the date of the employee's death.
Typically, this requirement will be satisfied by having a licensed
health care practitioner certify that the beneficiary was disabled or
chronically ill in a statement that is provided to the plan
administrator.
Section 1.401(a)(9)-4(h) permits an employee who wants to name a
trust as a beneficiary to treat the underlying beneficiaries of the
trust as designated beneficiaries of the employee's benefit under a
retirement plan if the employee (or the trustee of the trust) either:
(1) provides a copy of the trust instrument to the plan administrator
or (2) provides a list of all the beneficiaries of the trust, certifies
that, to the best of the employee's (or trustee's) knowledge, this list
is correct and complete, and agrees to provide a copy of the trust
instrument upon demand. If the trust instrument is amended at any time
in the future, the employee (or trustee) must, within a reasonable
time, provide a copy of each such amendment, or provide corrected
certifications to the extent that the amendment changes the information
previously certified. This requirement must generally be satisfied no
later than October 31 of the calendar year following the calendar year
of the employee's death.
The collections of information contained in this notice of final
rulemaking have been submitted to the Office of Management and Budget
for review in accordance with the Paperwork Reduction Act. The Treasury
Department and the IRS solicited public comments during the proposed
rulemaking at 87 FR 10504 on February 24, 2022. During the public
comment period, the Treasury Department and the IRS did not receive any
comments on the collections of information. Several commenters
requested that plan administrators be permitted to rely on self-
certifications from a designated beneficiary (or, in the case of a see-
through trust, the trustee of that trust) that the beneficiary is
disabled or chronically ill within the meaning of Sec. 1.401(a)(9)-
4(d). These final regulations do not adopt that rule for the reasons
described in section I.D.1.c of the Summary of Comments and Explanation
of Revisions. Commenters also requested that final regulations allow
for a certification from the trustee of the trust as to the
beneficiaries who are to be treated as beneficiaries of the employee
for purposes of section 401(a)(9). These final regulations do not adopt
that rule for the reasons described in section I.D.2.b of the Summary
of Comments and Explanation of Revisions.
III. Regulatory Flexibility Act
Pursuant to the Regulatory Flexibility Act (5 U.S.C. chapter 6), it
is hereby certified that the regulations will not have a significant
economic impact on a substantial number of small entities. These
regulations affect certain plan administrators and participants, 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,
[[Page 58906]]
accounts, and annuities. Because of the broad scope of the regulations,
the rule may affect a substantial number of small entities. However,
even if a substantial number of small entities are affected, the
economic impact of these regulations will not be significant. These
final regulations primarily update the existing regulations to
implement the statutory changes made since the issuance of the prior
regulations, while clarifying certain technical issues that have arisen
in applying those prior regulations. These regulations do not impose
new compliance burdens and are not expected to result in economically
meaningful changes in behavior relative to the 2002 or 2004 final
regulations. The election described in Sec. 1.401(a)(9)-3(b)(4)(iii)
and (c)(5)(iii) is expected to be an unusual occurrence for small
entities because few individuals with benefits in retirement plans
maintained by small entities are likely to make these elections. In the
case of Sec. 1.401(a)(9)-4(e)(7), when determining whether a
designated beneficiary is disabled or chronically ill, the reporting
burden is primarily on the designated beneficiary rather than the plan
sponsor. In the case of Sec. 1.401(a)(9)-4(h), when determining
required minimum distributions in cases in which a plan participant
wishes to designate a trust as beneficiary of the participant's
benefit, the reporting burden is primarily on the plan participant (or
the trustee of the trust named as beneficiary) to supply information
rather than on the entity maintaining the retirement plan. In addition,
the number of participants per plan to whom the burden applies is
likely to be small. In Sec. 1.403(b)-3(e)(6)(ii), the recordkeeping
burden with respect to section 403(b) contracts under which the pre-
1987 account balance must be maintained only applies to issuers and
custodians of those contracts, which generally are not small entities.
Pursuant to section 7805(f) of the Code, the proposed regulations
preceding these regulations were submitted to the Chief Counsel for
Advocacy of the Small Business Administration (Office of Advocacy) for
comment on their impact on small business. The Office of Advocacy
commented on the proposed regulations \20\ and recommended that the IRS
publish for public comment either a supplemental regulatory flexibility
act assessment with a valid factual basis in support of a certification
or an initial regulatory flexibility analysis. The Office of Advocacy
argued that the certification in the proposed regulations did not
adequately address the economic impact of the proposed regulations on
financial planners for the costs to learn those rules, update
distribution plans, and advise clients. The Treasury Department and the
IRS disagree because the certification is based on the direct economic
impact of the proposed regulations on the regulated community rather
than their advisors. Any economic impact on a financial planner is not
a direct impact. The regulations do not address the conduct of, or
requirements related to, financial planners.
---------------------------------------------------------------------------
\20\ The comment included a recommendation to eliminate the
requirement for annual distribution in certain circumstances as
described in section I.E.3.a of the Summary of Comments and
Explanation of Revisions portion of this preamble. For the reasons
described in that section, these regulations retain that rule.
---------------------------------------------------------------------------
IV. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 requires
that agencies assess anticipated costs and benefits and take certain
other actions before issuing a final rule that includes any Federal
mandate that may result in expenditures in any one year by a State,
local, or Tribal government, in the aggregate, or by the private
sector, of $100 million in 1995 dollars, updated annually for
inflation. The regulations do not include any Federal mandate that may
result in expenditures by State, local, or Tribal governments, or by
the private sector in excess of that threshold.
V. Executive Order 13132: Federalism
Executive Order 13132 (Federalism) prohibits an agency from
publishing any rule that has federalism implications if the rule either
imposes substantial, direct compliance costs on State and local
governments, and is not required by statute, or preempts State law,
unless the agency meets the consultation and funding requirements of
section 6 of the Executive order. The regulations would not have
federalism implications, impose substantial direct compliance costs on
State and local governments, or preempt State law within the meaning of
the Executive order.
VI. Congressional Review Act
The Administrator of the Office of Information and Regulatory
Affairs of the OMB has determined that this Treasury decision is a
major rule for purposes of the Congressional Review Act (5 U.S.C. 801
et seq.) (``CRA'').
Statement of Availability of IRS Documents
IRS Revenue Procedures, Revenue Rulings notices, and other guidance
cited in this document are published in the Internal Revenue Bulletin
(or Cumulative Bulletin) and are available from the Superintendent of
Documents, U.S. Government Publishing Office, Washington, DC 20402, or
by visiting the IRS website at <a href="http://www.irs.gov">http://www.irs.gov</a>.
Drafting Information
The principal authors of these regulations are Brandon M. Ford and
Linda S.F. Marshall, of the Office of the Associate Chief Counsel
(Employee Benefits, Exempt Organizations, and Employment Taxes).
However, other personnel from the Treasury Department and the IRS
participated in the development of the regulations.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
26 CFR Part 31
Employment taxes, Fishing vessels, Gambling, Income taxes,
Penalties, Pensions, Railroad retirement, Reporting and recordkeeping
requirements, Social security, Unemployment compensation.
26 CFR Part 54
Excise taxes, Health care, Pensions, Reporting and recordkeeping
requirements.
Adoption of Amendments to the Regulations
Accordingly, the Treasury Department and the IRS amend 26 CFR parts
1, 31, and 54 as follows:
PART 1--INCOME TAX
0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
0
Par. 2. For each section set forth below, revise the section by
removing the text that appears in the column labeled ``Remove'' and
replacing it with the text that appears in the column labeled
``Insert'':
[[Page 58907]]
------------------------------------------------------------------------
Regulation section Remove Insert
------------------------------------------------------------------------
Sec. 1.72(p)-1, Q&A-12.... ``Sec. 1.402(c)-2, ``Sec. 1.402(c)-
Q&A-4(d)''. 2(c)(3)''.
Sec. 1.72(p)-1, Q&A- ``Sec. 1.402(c)-2, ``Sec. 1.402(c)-
13(a)(2). Q&A-9(b)''. 2(g)(3)(i)''.
Sec. 1.72(p)-1, Q&A-13(b). ``Sec. 1.402(c)-2, ``Example 6 in Sec.
Q&A-9(c), Example 1.402(c)-2(g)(5)(v
6''. i)''.
Sec. 1.401(a)(31)-1, Q&A- ``Sec. 1.402(c)-2, ``Sec. 1.402(c)-
1(a). Q&A-3 through Q&A- 2''.
10 and Q&A-14''.
Sec. 1.401(a)(31)-1, Q&A- ``Sec. 1.402(c)-2, ``Sec. 1.402(c)-
1(a). Q&A-2''. 2(a)(1)(iii)''.
Sec. 1.401(a)(31)-1, Q&A- ``Sec. 1.402(c)-2, ``Sec. 1.402(c)-
1(a). Q&A-3 through Q&A- 2''.
10 and Q&A-14''.
Sec. 1.401(a)(31)-1, Q&A- ``Sec. 1.402-2(c)- ``Sec. 1.402(c)-
14(b)(1). 2, Q&A-1''. 2(a)''.
Sec. 1.401(a)(31)-1, Q&A- ``Sec. 1.402(c)-2, ``Sec. 1.402(c)-
14(b)(1). Q&A-9''. 2(g)''.
Sec. 1.401(a)(31)-1, Q&A- ``Sec. 1.402(c)-2, ``Sec. 1.402(c)-
14(b)(2). Q&A-1''. 2(a)''.
Sec. 1.401(a)(31)-1, Q&A- ``Sec. 1.402(c)- ``Sec. 1.402(c)-
16. 2(b), Q&A-9''. 2(g)''.
Sec. 1.401(a)(31)-1, Q&A- ``Sec. 1.402(c)- ``Sec. 1.402(c)-
17. 2), Q&A-10''. 2(h))''.
Sec. 1.401(a)(31)-1, Q&A- ``Section 1.402(c)- ``Section 1.402(c)-
17. 2, Q&A-10''. 2(h)''.
Sec. 1.401(a)(31)-1, Q&A- ``Sec. 1.402(c)-2, ``Sec. 1.402(c)-
18(a). Q&A-15''. 2(k)(2)''.
Sec. 1.401(k)-2(b)(2)(vi). ``Sec. 1.402(c)-2, ``Sec. 1.402(c)-
A-4''. 2(c)(3)''.
Sec. 1.401(k)- ``Sec. 1.401(a)(9)- ``Sec. Sec.
2(b)(2)(vii)(C). 5, A-9(b)''. 1.401(a)(9)-5(g)(2)
(ii) and 1.402(c)-
2(c)(3)''.
Sec. 1.401(k)-4(e)(1)..... ``Sec. 1.402(c)-2, ``Sec. 1.402(c)-
Q&A-1(a)''. 2(a)''.
Sec. 1.401(m)- ``Sec. 1.402(c)-2, ``Sec. 1.402(c)-
2(b)(2)(vi)(A). A-4''. 2(c)(3)''.
Sec. 1.401(m)-2(b)(3)(iii) ``Sec. 1.401(a)(9)- ``Sec. Sec.
5, A-9(b)''. 1.401(a)(9)-5(g)(2)
(ii) and 1.402(c)-
2(c)(3)''.
Sec. 1.402(a)-1(a)(2)..... ``1.401(a)(9)-6, Q&A- ``1.401(a)(9)-6(d)''
4''. .
Sec. 1.402A-1, Q&A-11..... ``A-4 of Sec. ``Sec. 1.402(c)-
1.402(c)-2''. 2(c)(3)''.
Sec. 1.402A-1, Q&A-14..... ``Sec. 1.402(c)-2, ``Sec. 1.402(c)-
A-10(a)''. 2(h)''.
Sec. 1.408A-4, Q&A ``Sec. 1.401(a)(9)- ``Sec. 1.401(a)(9)-
14(b)(3). 6, Q&A-12''. 6(m)(2)''.
Sec. 1.408A-4, Q&A ``Sec. 1.401(a)(9)- ``Sec. 1.401(a)(9)-
14(b)(3)(iii). 6, Q&A-12(c)(1) and 6(m)(3)''.
(c)(2)''.
Sec. 1.408A-6, Q&A-14(d).. ``A-3 of Sec. ``Sec. 1.401(a)(9)-
1.401(a)(9)-5''. 5(b)(4)''.
Sec. 1.408A-6, Q&A-14(d).. ``A-12 of Sec. ``Sec. 1.408-
1.408-8''. 8(h)''.
Sec. 1.408A-6, Q&A-14(d).. ``A-17 of Sec. ``Sec. 1.401(a)(9)-
1.401(a)(9)-6''. 6(q)''.
Sec. 1.409A- ``Sec. 1.401(a)(9)- ``Sec. 1.401(a)(9)-
2(b)(2)(ii)(B)(5). 6, Q&A-14(a)(1) or 6(o)(1)(i) or
(2)''. (ii)''.
Sec. 1.411(b)(5)- ``Sec. 1.401(a)(9)- ``Sec. 1.401(a)(9)-
1(d)(4)(iii). 6, A-14(b)''. 6(o)(2)''.
Sec. 1.411(b)(5)- ``Sec. 1.401(a)(9)- ``Sec. 1.401(a)(9)-
1(d)(4)(iii). 6, A-14(b)(2)''. 6(o)(2)(ii)''.
Sec. 1.6047-2(a)(1)....... ``A-17 of Sec. ``Sec. 1.401(a)(9)-
1.401(a)(9)-6''. 6(q)''.
Sec. 1.6047-2(b)(1)....... ``A-17(d)(2)(ii) of ``Sec. 1.401(a)(9)-
Sec. 1.401(a)(9)- 6(q)(4)(ii)(B)''.
6''.
------------------------------------------------------------------------
0
Par. 3. Revise and republish Sec. Sec. 1.401(a)(9)-0 through
1.401(a)(9)-8 to read as follows:
Sec. 1.401(a)(9)-0 Required minimum distributions; table of contents.
This table of contents lists the regulations relating to required
minimum distributions under section 401(a)(9) of the Internal Revenue
Code as follows:
Sec. 1.401(a)(9)-1 Minimum distribution requirement in general.
(a) Plans subject to minimum distribution requirement.
(1) In general.
(2) Participant in multiple plans.
(3) Governmental plans.
(b) Statutory effective date.
(1) In general.
(2) Effective date for section 401(a)(9)(H).
(3) Examples.
(c) Required and optional plan provisions.
(1) Required provisions.
(2) Optional provisions.
(d) Regulatory applicability date.
Sec. 1.401(a)(9)-2 Distributions commencing during an employee's
lifetime.
(a) Distributions commencing during an employee's lifetime.
(1) In general.
(2) Amount required to be distributed for a calendar year.
(3) Distributions commencing before required beginning date.
(4) Distributions after death.
(b) Determination of required beginning date.
(1) General rule.
(2) Definition of applicable age.
(3) Required beginning date for 5-percent owner.
(4) Uniform required beginning date.
(5) Plans maintained by more than one employer.
Sec. 1.401(a)(9)-3 Death before required beginning date.
(a) Distribution requirements.
(1) In general.
(2) Special rule for designated Roth accounts.
(b) Distribution requirements in the case of a defined benefit
plan.
(1) In general.
(2) 5-year rule.
(3) Annuity payments.
(4) Determination of which rule applies.
(c) Distributions in the case of a defined contribution plan.
(1) In general.
(2) 5-year rule.
(3) 10-year rule.
(4) Life expectancy payments.
(5) Determination of which rule applies.
(d) Permitted delay for surviving spouse beneficiaries.
(e) Distributions that commence after surviving spouse's death.
(1) In general.
(2) Remarriage of surviving spouse.
(3) When distributions are treated as having begun to surviving
spouse.
Sec. 1.401(a)(9)-4 Determination of the designated beneficiary.
(a) Beneficiary designated under the plan.
(1) In general.
(2) Entitlement to employee's interest in the plan.
(3) Specificity of beneficiary designation.
(4) Affirmative and default elections of designated beneficiary.
(b) Designated beneficiary must be an individual.
(c) Rules for determining beneficiaries.
(1) Time period for determining the beneficiary.
(2) Circumstances under which a beneficiary is disregarded as a
beneficiary of the employee.
(3) Examples.
(d) Application of beneficiary designation rules to surviving
spouse.
(e) Eligible designated beneficiaries.
(1) In general.
(2) Multiple designated beneficiaries.
(3) Determination of age of majority.
(4) Disabled individual.
(5) Chronically ill individual.
(6) Individual not more than 10 years younger than the employee.
(7) Documentation requirements for disabled or chronically ill
individuals.
(8) Applicability of definition of eligible designated
beneficiary to beneficiary of surviving spouse.
[[Page 58908]]
(9) Examples.
(f) Special rules for trusts.
(1) Look-through of trust to determine designated beneficiaries.
(2) Trust requirements.
(3) Trust beneficiaries treated as beneficiaries of the
employee.
(4) Multiple trust arrangements.
(5) Identifiability of trust beneficiaries.
(6) Examples.
(g) Applicable multi-beneficiary trust.
(1) Certain see-through trusts with disabled or chronically ill
beneficiaries.
(2) Termination of interest in trust.
(3) Special definition of designated beneficiary.
(h) Documentation requirements for trusts.
(1) General rule.
(2) Required minimum distributions while employee is still
alive.
(3) Required minimum distributions after death.
(4) Relief for discrepancy between trust instrument and employee
certifications or earlier trust instruments.
Sec. 1.401(a)(9)-5 Required minimum distributions from defined
contribution plans.
(a) General rules.
(1) In general.
(2) Distribution calendar year.
(3) Time for distributions.
(4) Minimum distribution incidental benefit requirement.
(5) Annuity contracts.
(6) Impact of additional distributions in prior years.
(b) Determination of account balance.
(1) General rule.
(2) Adjustment for subsequent allocations and distributions.
(3) Adjustment for designated Roth accounts.
(4) Exclusion for QLAC.
(5) Treatment of rollovers.
(c) Determination of applicable denominator during employee's
lifetime.
(1) General rule.
(2) Spouse is sole beneficiary.
(d) Applicable denominator after employee's death.
(1) Death on or after the employee's required beginning date.
(2) Death before an employee's required beginning date.
(3) Remaining life expectancy.
(e) Distribution of employee's entire interest required.
(1) In general.
(2) 10-year limit for designated beneficiary who is not an
eligible designated beneficiary.
(3) 10-year limit following death of eligible designated
beneficiary.
(4) 10-year limit after minor child of the employee reaches age
of majority.
(f) Rules for multiple designated beneficiaries.
(1) Determination of applicable denominator.
(2) Determination of when entire interest is required to be
distributed.
(g) Special rules.
(1) Treatment of nonvested amounts.
(2) Distributions taken into account.
(3) Surviving spouse election under section 401(a)(9)(B)(iv).
Sec. 1.401(a)(9)-6 Required minimum distributions for defined
benefit plans and annuity contracts.
(a) General rules.
(1) In general.
(2) Definition of life annuity.
(3) Annuity commencement.
(4) Single-sum distributions.
(5) Death benefits.
(6) Separate treatment of separate identifiable components.
(7) Additional guidance.
(b) Application of incidental benefit requirement.
(1) Life annuity for employee.
(2) Joint and survivor annuity.
(3) Period certain and annuity features.
(4) Deemed satisfaction of incidental benefit rule.
(c) Period certain annuity.
(1) Distributions commencing during the employee's life.
(2) Distributions commencing after the employee's death.
(d) Use of annuity contract.
(1) In general.
(2) Applicability of section 401(a)(9)(H).
(e) Treatment of additional accruals.
(1) General rule.
(2) Administrative delay.
(f) Treatment of nonvested benefits.
(g) Requirement for actuarial increase.
(1) General rule.
(2) Nonapplication to 5-percent owners.
(3) Nonapplication to governmental plans.
(4) Nonapplication to church plans and church employees.
(h) Amount of actuarial increase.
(1) In general.
(2) Actuarial equivalence basis.
(3) Coordination with section 411 actuarial increase.
(i) [Reserved]
(j) Distributions restricted pursuant to section 436.
(1) General rule.
(2) Payments restricted under section 436(d)(3).
(3) Payments restricted under section 436(d)(1) or (2).
(k) Treatment of early commencement.
(1) General rule.
(2) Joint and survivor annuity, non-spouse beneficiary.
(3) Limitation on period certain.
(l) Early commencement for surviving spouse.
(m) Determination of entire interest under annuity contract.
(1) General rule.
(2) Entire interest.
(3) Exclusions.
(4) Examples.
(n) Change in annuity payment period.
(1) In general.
(2) Reannuitization.
(3) Conditions.
(4) Examples.
(o) Increase in annuity payments.
(1) General rules.
(2) Eligible cost of living index.
(3) Additional permitted increases for annuity contracts
purchased from insurance companies.
(4) Additional permitted increases for annuity payments from a
qualified trust.
(5) Actuarial gain defined.
(6) Examples.
(p) Payments to children.
(1) In general.
(2) Age of majority.
(q) Qualifying longevity annuity contract.
(1) Definition of qualifying longevity annuity contract.
(2) Limitation on premiums.
(3) Payments after death of the employee.
(4) Rules of application.
Sec. 1.401(a)(9)-7 Rollovers and transfers.
(a) Treatment of rollover from distributing plan.
(b) Treatment of rollover by receiving plan.
(c) Treatment of transfer under transferor plan.
(1) Generally not treated as distribution.
(2) Account balance decreased after transfer.
(d) Treatment of transfer under transferee plan.
(e) Treatment of spinoff or merger.
Sec. 1.401(a)(9)-8 Special rules.
(a) Use of separate accounts.
(1) Separate application of section 401(a)(9) for each
beneficiary.
(2) Separate accounting requirements.
(b) Application of consent requirements.
(c) Definition of spouse.
(d) Treatment of QDROs.
(1) Continued treatment of spouse.
(2) Separate accounts.
(3) Other situations.
(e) Application of section 401(a)(9) pending determination of
whether a domestic relations order is a QDRO is being made.
(f) Application of section 401(a)(9) when insurer is in State
delinquency proceedings.
(g) In-service distributions required to satisfy section
401(a)(9).
(h) TEFRA section 242(b) elections.
(1) In general.
(2) Application of section 242(b) election after transfer.
(3) Application of section 242(b) election after rollover.
(4) Revocation of section 242(b) election.
Sec. 1.401(a)(9)-9 Life expectancy and Uniform Lifetime tables.
(a) In general.
(b) Single Life Table.
(c) Uniform Lifetime Table.
(d) Joint and Last Survivor Table.
(e) Mortality rates.
(f) Applicability dates.
(1) In general.
(2) Application to life expectancies that may not be
recalculated.
Sec. 1.401(a)(9)-1 Minimum distribution requirement in general.
(a) Plans subject to minimum distribution requirement--(1) In
general. Under section 401(a)(9), all stock bonus, pension, and profit-
sharing plans qualified under section 401(a) and annuity contracts
described in section 403(a) are subject to required minimum
distribution rules. See this section and Sec. Sec. 1.401(a)(9)-2
through 1.401(a)(9)-9 for the distribution rules applicable to these
plans. Under section 403(b)(10), annuity contracts and custodial
[[Page 58909]]
accounts described in section 403(b) are subject to required minimum
distribution rules. See Sec. 1.403(b)-6(e) for the distribution rules
applicable to these annuity contracts and custodial accounts. Under
section 408(a)(6) and 408(b)(3), individual retirement accounts and
individual retirements annuities (collectively, IRAs) are subject to
required minimum distribution rules. See Sec. 1.408-8 for the minimum
distribution rules applicable to IRAs and Sec. 1.408A-6 for the
minimum distribution rules applicable to Roth IRAs under section 408A.
Under section 457(d)(2), eligible deferred compensation plans described
in section 457(b) for employees of tax-exempt organizations or
employees of State and local governments are subject to required
minimum distribution rules. See Sec. 1.457-6(d) for the minimum
distribution rules applicable to those eligible deferred compensation
plans.
(2) Participant in multiple plans. If an employee is a participant
in more than one plan, the plans in which the employee participates are
not permitted to be aggregated for purposes of testing whether the
distribution requirements of section 401(a)(9) are met. Thus, the
distribution of the benefit of the employee under each plan must
separately meet the requirements of section 401(a)(9). For this
purpose, a plan described in section 414(k) is treated as two separate
plans, a defined contribution plan to the extent benefits are based on
an individual account and a defined benefit plan with respect to the
remaining benefits.
(3) Governmental plans. A governmental plan (within the meaning of
section 414(d)), or an eligible governmental plan described in Sec.
1.457-2(f), is treated as having complied with section 401(a)(9) if the
plan complies with a reasonable, good faith interpretation of section
401(a)(9). Thus, the terms of a governmental plan that reflect a
reasonable, good faith interpretation of section 401(a)(9) do not have
to provide that distributions will be made in accordance with this
section and Sec. Sec. 1.401(a)(9)-2 through 1.401(a)(9)-9. Similarly,
a governmental plan may apply the rules of section 401(a)(9)(F) using
the rules of Sec. 1.401(a)(9)-6, Q&A-15 (as it appeared in the April
1, 2023, edition of 26 CFR part 1).
(b) Statutory effective date--(1) In general. The distribution
rules of section 401(a)(9) generally apply to all account balances and
benefits in existence on or after January 1, 1985.
(2) Effective date for section 401(a)(9)(H)--(i) General effective
date. Except as otherwise provided in this paragraph (b)(2), section
401(a)(9)(H) applies with respect to employees who die on or after
January 1, 2020. However, in the case of a governmental plan (as
defined in section 414(d)), section 401(a)(9)(H) applies with respect
to employees who die on or after January 1, 2022.
(ii) Delayed effective date for collectively bargained plans--(A)
General rule. In the case of a plan maintained pursuant to one or more
collective bargaining agreements between employee representatives and
one or more employers ratified before December 20, 2019 (the date of
enactment of the Further Consolidated Appropriations Act, 2020, Public
Law 116-94, 133 Stat. 2534 (2019)), section 401(a)(9)(H) generally
applies with respect to employees who die on or after January 1, 2022.
(B) Earlier effective date if agreements terminate. Notwithstanding
paragraph (b)(2)(ii)(A) of this section, section 401(a)(9)(H) applies
to a plan maintained pursuant to one or more collective bargaining
agreements with respect to employees who die in 2020 or 2021 if--
(1) The year in which the employee dies begins after the date on
which the last of the collective bargaining agreements described in
paragraph (b)(2)(ii)(A) of this section terminates (determined without
regard to any extension thereof to which the parties agreed on or after
December 20, 2019), and
(2) Section 401(a)(9)(H) would apply with respect to the employee
under the rules of paragraph (b)(2)(i) of this section.
(C) Rules of application. For purposes of this paragraph
(b)(2)(ii)--
(1) A plan is treated as maintained pursuant to one or more
collective bargaining agreements only if the plan constitutes a
collectively bargained plan under the rules of Sec. 1.436-
1(a)(5)(ii)(B), and
(2) Any plan amendment made pursuant to a collective bargaining
agreement that amends the plan solely to conform to the requirements of
section 401(a)(9)(H) is not treated as a termination of the collective
bargaining agreement.
(iii) Applicability upon death of designated beneficiary--(A) In
general. Except as otherwise provided in this paragraph (b)(2)(iii), if
an employee who died before the effective date described in paragraph
(b)(2)(i) or (ii) of this section (whichever applies to the plan) has
only one designated beneficiary and that beneficiary dies on or after
that effective date, then, upon the death of the designated
beneficiary, section 401(a)(9)(H) applies with respect to any
beneficiary of the employee's designated beneficiary. Section 401(b)(5)
of Division O of the Further Consolidated Appropriations Act, 2020
(known as the SECURE Act) provides that, if an employee dies before the
effective date, then a designated beneficiary of an employee is treated
as an eligible designated beneficiary. Accordingly, once the rules of
section 401(a)(9)(H) apply with respect to the employee's designated
beneficiary, the rules of section 401(a)(9)(H)(iii) (requiring full
distribution of the employee's interest within 10 years after the death
of an eligible designated beneficiary) apply upon the designated
beneficiary's death.
(B) Employee with multiple designated beneficiaries. If an employee
described in paragraph (b)(2)(iii)(A) of this section has more than one
designated beneficiary, then whether section 401(a)(9)(H) applies is
determined based on the date of death of the oldest of the employee's
designated beneficiaries. Thus, section 401(a)(9)(H) will apply upon
the death of the oldest of the employee's designated beneficiaries if
that designated beneficiary is still alive on or after the effective
date of section 401(a)(9)(H) for the plan as determined under the rules
of paragraph (b)(2)(i) or (ii) of this section. However, see Sec.
1.401(a)(9)-8(a) for rules related to the separate application of
section 401(a)(9) with respect to multiple beneficiaries if certain
requirements are met.
(C) Surviving spouse of the employee dies before employee's
required beginning date. If an employee described in paragraph
(b)(2)(iii)(A) of this section dies before the employee's required
beginning date and the employee's surviving spouse is waiting to begin
distributions until the year for which the employee would have been
required to begin distributions pursuant to section
401(a)(9)(B)(iv)(II), then, in applying the rules of this paragraph
(b)(2)(iii), the surviving spouse is treated as the employee. Thus, for
example, if an employee with a required beginning date of April 1,
2025, names the employee's surviving spouse as the sole beneficiary of
the employee's interest in the plan, both the employee and the
employee's surviving spouse die before the effective date of section
401(a)(9)(H) for the plan, and that spouse's designated beneficiary
dies on or after that effective date, then section 401(a)(9)(H) applies
with respect to the surviving spouse's designated beneficiary upon the
death of that designated beneficiary (so that full distribution of the
employee's interest must be made no later than the end of
[[Page 58910]]
the calendar year that includes the tenth anniversary of the date of
that designated beneficiary's death).
(iv) Qualified annuity exception--(A) In general. Section
401(a)(9)(H) does not apply to a commercial annuity (as defined in
section 3405(e)(6))--
(1) That is a binding annuity contract in effect as of December 20,
2019;
(2) Under which payments satisfy the requirements of Sec. Sec.
1.401(a)(9)-1 through 1.401(a)(9)-9 (as those sections appeared in the
April 1, 2019, edition of 26 CFR part 1); and
(3) That satisfies the irrevocability requirements of paragraph
(b)(2)(iv)(B) of this section.
(B) Irrevocability requirements applicable to annuity contract. A
contract satisfies the requirements of this paragraph (b)(2)(iv)(B) if
the employee (or, if the employee has died, the designated beneficiary)
has made an irrevocable election before December 20, 2019, as to the
method and amount of annuity payments to the employee and any
designated beneficiary.
(3) Examples. The following examples illustrate the applicability
date rules of this paragraph (b).
(i) Example 1. Employer M maintains a defined contribution plan,
Plan X. Employee A died in 2017, at the age of 68, and designated A's
40-year-old child, B, who was not disabled or chronically ill at the
time of A's death, as the sole beneficiary of A's interest in Plan X.
Pursuant to a plan provision in Plan X, B elected to take distributions
over B's life expectancy under section 401(a)(9)(B)(iii). B dies in
2024, after the effective date of section 401(a)(9)(H). Because section
401(b)(5) of the SECURE Act treats B as an eligible designated
beneficiary, the rules of section 401(a)(9)(H)(iii) apply to B's
beneficiaries. Therefore, A's remaining interest in Plan X must be
distributed by the end of 2034 (the calendar year that includes the
tenth anniversary of B's death).
(ii) Example 2. The facts are the same as in paragraph (b)(3)(i) of
this section (Example 1), except that B died in 2019. Because A's
designated beneficiary died before the effective date of section 401 of
the SECURE Act, the rules of section 401(a)(9)(H) do not apply to B's
beneficiaries.
(iii) Example 3. The facts are the same as in paragraph (b)(3)(i)
of this section (Example 1) except that, pursuant to a provision in
Plan X, B elected the 5-year rule under section 401(a)(9)(B)(ii).
Accordingly, A's entire interest is required to be distributed by the
end of 2022. Because A died before January 1, 2020, section
401(a)(9)(H) does not apply with respect to B. Therefore, section
401(a)(9)(H)(i)(I) does not extend the 5-year period under B's election
to a 10-year period. Although B's election required A's entire interest
to be distributed by the end of 2022, the enactment of section
401(a)(9)(I)(iii)(II) (permitting disregard of 2020 when the 5-year
period applies) permits distribution of A's entire interest in the plan
to be delayed until the end of 2023.
(iv) Example 4. The facts are the same as in paragraph (b)(3)(i) of
this section (Example 1), except that A designates a see-through trust
that satisfies the requirements of Sec. 1.401(a)(9)-4(f)(2) as the
sole beneficiary of A's interest in Plan X. All of the trust
beneficiaries are alive as of January 1, 2020. The oldest of the trust
beneficiaries, C, died in 2022. Because section 401(b)(5) of the SECURE
Act treats C as an eligible designated beneficiary, the rules of
section 401(a)(9)(H)(iii) apply to the other trust beneficiaries. Thus,
unless the rules of Sec. 1.401(a)(9)-5(f)(2)(ii)(B) or (iii) apply,
A's remaining interest in Plan X must be distributed by the end of 2032
(the calendar year that includes the tenth anniversary of C's death).
(v) Example 5. The facts are the same as in paragraph (b)(3)(iv) of
this section (Example 4), except that C died in 2019. Because the
oldest designated beneficiary died before January 1, 2020, the rules of
section 401(a)(9)(H) do not apply to any of the other trust
beneficiaries.
(vi) Example 6. The facts are the same as in paragraph (b)(3)(i) of
this section (Example 1), except that B elected to purchase an annuity
that pays over B's lifetime with a 15-year certain period starting in
the calendar year following the calendar year of A's death. Because B
died after the effective date of section 401(a)(9)(H), the rules of
section 401(a)(9)(H)(iii) apply, and accordingly, the annuity may not
provide distributions any later than the end of 2034.
(c) Required and optional plan provisions--(1) Required provisions.
In order to satisfy section 401(a)(9), a plan must include the
provisions described in this paragraph (c)(1) reflecting section
401(a)(9). First, a plan generally must set forth the statutory rules
of section 401(a)(9), including the incidental death benefit
requirement in section 401(a)(9)(G). Second, a plan must provide that
distributions will be made in accordance with this section and
Sec. Sec. 1.401(a)(9)-2 through 1.401(a)(9)-9. A plan document also
must provide that the provisions reflecting section 401(a)(9) override
any distribution options in the plan that are inconsistent with section
401(a)(9). A plan also must include any other provisions reflecting
section 401(a)(9) that are prescribed by the Commissioner in revenue
rulings, notices, and other guidance published in the Internal Revenue
Bulletin. See Sec. 601.601(d) of this chapter.
(2) Optional provisions. A plan may also include optional
provisions governing plan distributions that do not conflict with
section 401(a)(9). For example, a defined benefit plan may include a
provision described in Sec. 1.401(a)(9)-3(b)(4)(ii) (requiring that
the 5-year rule apply to an employee who has a designated beneficiary).
Similarly, a defined contribution plan may provide for an election by
an eligible designated beneficiary as described in Sec. 1.401(a)(9)-
3(c)(5)(iii).
(d) Regulatory applicability date. This section and Sec. Sec.
1.401(a)(9)-2 through 1.401(a)(9)-9 apply for purposes of determining
required minimum distributions for calendar years beginning on or after
January 1, 2025. For earlier calendar years, the rules of Sec. Sec.
1.401(a)(9)-1 through 1.401(a)(9)-9 (as those sections appeared in the
April 1, 2023, edition of 26 CFR part 1) apply.
Sec. 1.401(a)(9)-2 Distributions commencing during an employee's
lifetime.
(a) Distributions commencing during an employee's lifetime--(1) In
general. In order to satisfy section 401(a)(9)(A), the entire interest
of each employee must be distributed to the employee not later than the
required beginning date, or must be distributed, beginning not later
than the required beginning date, over the life of the employee or the
joint lives of the employee and a designated beneficiary or over a
period not extending beyond the life expectancy of the employee or the
joint life and last survivor expectancy of the employee and the
designated beneficiary. Under section 401(a)(9)(G), lifetime
distributions must satisfy the incidental death benefit requirements of
Sec. 1.401-1(b)(1).
(2) Amount required to be distributed for a calendar year. The
amount required to be distributed for each calendar year in order to
satisfy section 401(a)(9)(A) and (G) generally depends on whether the
amount to be distributed is from an individual account under a defined
contribution plan, is an annuity payment from a defined benefit plan,
or is a payment under an annuity contract. For the method of
determining the required minimum distribution in accordance with
section 401(a)(9)(A) and (G) from an individual account under a defined
contribution plan, see Sec. 1.401(a)(9)-5. For the method of
determining the required minimum distribution in accordance with
section 401(a)(9)(A) and (G) in the case of
[[Page 58911]]
annuity payments from a defined benefit plan or under an annuity
contract (including an annuity contract purchased under a defined
contribution plan), see Sec. 1.401(a)(9)-6.
(3) Distributions commencing before required beginning date--(i) In
general. Lifetime distributions made before the employee's required
beginning date for calendar years before the employee's first
distribution calendar year, as defined in Sec. 1.401(a)(9)-
5(a)(2)(ii), need not be made in accordance with section 401(a)(9).
However, if distributions commence before the employee's required
beginning date under a particular distribution option (such as in the
form of an annuity) and, under the terms of that distribution option,
distributions to be made for the employee's first distribution calendar
year (or any subsequent calendar year) will fail to satisfy section
401(a)(9), then the distribution option fails to satisfy section
401(a)(9) at the time distributions commence.
(ii) Date distributions are treated as having begun. Except as
otherwise provided in paragraph (a)(3)(iii) of this section and Sec.
1.401(a)(9)-6(k), distributions to the employee are not treated as
having begun in accordance with section 401(a)(9)(A)(ii) until the
employee's required beginning date, as determined in accordance with
paragraph (b)(1) or (3) of this section, whichever applies to the
employee. The preceding sentence applies even if the employee has
received distributions before the employee's required beginning date
(either pursuant to plan terms that require distributions to begin by
an earlier date or pursuant to the employee's election). Thus, even if
payments have been made before the employee's required beginning date,
the rules of Sec. 1.401(a)(9)-3 will apply if the employee dies before
that date. For example, if A is an employee who retires in 2023, the
calendar year A attains age 71, and begins receiving installment
distributions from a profit-sharing plan over a period not exceeding
the joint life and last survivor expectancy of A and A's spouse,
benefits are not treated as having begun in accordance with section
401(a)(9)(A)(ii) until April 1, 2026 (the April 1 following the
calendar year in which A attains age 73). Consequently, if A dies
before April 1, 2026 (A's required beginning date), distributions after
A's death must be made in accordance with Sec. 1.401(a)(9)-3
(addressing payments to beneficiaries pursuant to section
401(a)(9)(B)(ii), (iii), or (iv), whichever applies, in cases in which
required distributions have not begun) rather than section
401(a)(9)(B)(i) (addressing payments to beneficiaries in cases in which
required distributions have begun). This is the case without regard to
whether, before A's death, the plan distributed the minimum
distribution for the A's first distribution calendar year (as defined
in Sec. 1.401(a)(9)-5(a)(2)(ii)).
(iii) Exception for uniform required beginning date. If a plan
provides, in accor
[…truncated; see source link]Indexed from Federal Register on July 19, 2024.
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