Congress clarifies Secure 2.0 RMD ages

[Alan S.]

There was a drafting error in the Secure 2.0 legislation regarding the increase in RMD age for plan owners, specifically for those born in 1959. Congress has advised the IRS by letter of their intent, to be followed by technical correction in a future bill.

The end result is that the RMD age for those born in 1959 will be 73, and for those born after 1959 the RMD age will be 75.

Summary of DOB RMD ages:
Prior to 7/1/1949 70.5
7/1/1949 to 12/31/1950 72
1951-1959 73
After 1959 75

[BespokeBiker]

Thanks for the update on this.

[Steady59]

'59 baby here. Does the RMD have to start in the year that you turn 73 or the year following?

[rkhusky]

'59 baby here. Does the RMD have to start in the year that you turn 73 or the year following?

The year you turn 73, although you can defer until April 1 of the following year, but then you will take two RMD’s that year.

[Steady59]

'59 baby here. Does the RMD have to start in the year that you turn 73 or the year following?

The year you turn 73, although you can defer until April 1 of the following year, but then you will take two RMD’s that year.

Thank you.

[WoodSpinner]

There was a drafting error in the Secure 2.0 legislation regarding the increase in RMD age for plan owners, specifically for those born in 1959. Congress has advised the IRS by letter of their intent, to be followed by technical correction in a future bill.

The end result is that the RMD age for those born in 1959 will be 73, and for those born after 1959 the RMD age will be 75.

Summary of DOB RMD ages:
Prior to 7/1/1949 70.5
7/1/1949 to 12/31/1950 72
1951-1959 73
After 1959 75

Thanks! I have been waiting for this announcement…..

[HomeStretch]

Alan, thanks for the update. Your posts regarding Secure Act 2.0 and RMDs/Inherited RMDs have been very helpful!

[Alan S.]

Here is a new article on the widely overlooked Secure 1.0 IRS proposed Regs which apply a deadline to spousal assumption of ownership on an inherited IRA.

https://www.morningstar.com/financial-a ... eneficiary

I suspect that a Morningstar subscription is required to open the above link. If so the following key paragraph is copied below:

New Deadline for Treating As Own

No longer can we tell spouse beneficiaries that they have forever and a day to elect the treat-as-own option for inherited IRAs. Instead, the proposed RMD regulations for Secure Act 1.0 explain that the deadline for a spouse beneficiary to treat an inherited IRA as their own is the later of:

The end of the calendar year in which the surviving spouse reaches their applicable RMD age, and
The end of the calendar year following the calendar year of the IRA owner’s death.
If a spouse beneficiary misses the deadline to treat an inherited IRA as their own, there is still hope, as they can roll over the amount instead. But any beneficiary RMD due must be taken before the rollover.

This deadline also exposes the surviving spouse to the one rollover rule if they must use a rollover because the deadline was missed. They may not even have a rollover available. Further, this would trigger beneficiary RMDs for the rollover year that in the past could have been reduced by treating the assumed IRA as owned the entire year and using the Uniform Table.

[fred9]

I am a surviving spouse and have a question about which RMD table to use.
My wife died Jan 13, 2022 at age 75. I will be 80 in September.
I am the only beneficiary on her Trad IRA.
She took her RMD for 2022 before she died.
Shortly after she died, Vanguard "automatically" transferred het IRA to me. It is(was) titled "my name- Inherited IRA Brokerage account ####".
Because she had taken her RMD for '22 I didn't do anything with the account in 2022. This year, as usual, Vanguard published the dollar amount of my RMD. On the RMD page, it also showed a separate line for the inherited IRA account but no dollar amount. So I called Vanguard and was told that the RMD amount would be calculated using a different table. That table resulted in the amount being over 83% higher than using Table III which is used for my RMD. I told Vanguard to NOT use that table.
I now have learned that in 2022 I could have (should have) requested that Vanguard "roll over" the inherited ira into my ira account. Vanguard said if I had done that, table III would be used for the new total.
They said I could make a written request to roll the inherited IRA into mine. I did that. I now have asked Vanguard to use table III on the new total of both ira's as of 12/31/2022. They are now deciding if they will do so. I told them that in 2022 I did not realize I had three options to choose from as described in IRS Pub 550 pasted below. I asked them why they didn't give me the three options before they set up the separate inherited account. No reply.

Online this thread is all I could find on this topic.

Any suggestion on what I can/should do to enable me to not have to withdraw the higher amount this year? (I think that for next year I will be able to use Table III.) If Vanguard says no I can't use Table III, can I ask them to use Table III and take my chances with the IRS?

Thanks


from IRS Pub 500-B
What if You Inherit an IRA?
If you inherit a traditional IRA, you are called a beneficiary. A beneficiary can be any person or entity the owner chooses to receive the benefits of the IRA after he or she dies. Beneficiaries of a traditional IRA must include in their gross income any taxable distributions they receive.

Inherited from spouse. If you inherit a traditional IRA from your spouse, you generally have the following three choices. You can:
Treat it as your own IRA by designating yourself as the account owner;
Treat it as your own by rolling it over into your IRA, or to the extent it is taxable, into a:
Qualified employer plan,
Qualified employee annuity plan (section 403(a) plan),
Tax-sheltered annuity plan (section 403(b) plan),
Deferred compensation plan of a state or local government (section 457 plan), or
Treat yourself as the beneficiary rather than treating the IRA as your own.
Treating it as your own. You will be considered to have chosen to treat the IRA as your own if:
Contributions (including rollover contributions) are made to the inherited IRA, or
You don't take the required minimum distribution for a year as a beneficiary of the IRA.
You will only be considered to have chosen to treat the IRA as your own if:
You are the sole beneficiary of the IRA, and
You have an unlimited right to withdraw amounts from it.

[Alan S.]

I am a surviving spouse and have a question about which RMD table to use.
My wife died Jan 13, 2022 at age 75. I will be 80 in September.
I am the only beneficiary on her Trad IRA.
She took her RMD for 2022 before she died.
Shortly after she died, Vanguard "automatically" transferred het IRA to me. It is(was) titled "my name- Inherited IRA Brokerage account ####".
Because she had taken her RMD for '22 I didn't do anything with the account in 2022. This year, as usual, Vanguard published the dollar amount of my RMD. On the RMD page, it also showed a separate line for the inherited IRA account but no dollar amount. So I called Vanguard and was told that the RMD amount would be calculated using a different table. That table resulted in the amount being over 83% higher than using Table III which is used for my RMD. I told Vanguard to NOT use that table.
I now have learned that in 2022 I could have (should have) requested that Vanguard "roll over" the inherited ira into my ira account. Vanguard said if I had done that, table III would be used for the new total.
They said I could make a written request to roll the inherited IRA into mine. I did that. I now have asked Vanguard to use table III on the new total of both ira's as of 12/31/2022. They are now deciding if they will do so. I told them that in 2022 I did not realize I had three options to choose from as described in IRS Pub 550 pasted below. I asked them why they didn't give me the three options before they set up the separate inherited account. No reply.

Online this thread is all I could find on this topic.

Any suggestion on what I can/should do to enable me to not have to withdraw the higher amount this year? (I think that for next year I will be able to use Table III.) If Vanguard says no I can't use Table III, can I ask them to use Table III and take my chances with the IRS?

Thanks


from IRS Pub 500-B
What if You Inherit an IRA?
If you inherit a traditional IRA, you are called a beneficiary. A beneficiary can be any person or entity the owner chooses to receive the benefits of the IRA after he or she dies. Beneficiaries of a traditional IRA must include in their gross income any taxable distributions they receive.

Inherited from spouse. If you inherit a traditional IRA from your spouse, you generally have the following three choices. You can:
Treat it as your own IRA by designating yourself as the account owner;
Treat it as your own by rolling it over into your IRA, or to the extent it is taxable, into a:
Qualified employer plan,
Qualified employee annuity plan (section 403(a) plan),
Tax-sheltered annuity plan (section 403(b) plan),
Deferred compensation plan of a state or local government (section 457 plan), or
Treat yourself as the beneficiary rather than treating the IRA as your own.
Treating it as your own. You will be considered to have chosen to treat the IRA as your own if:
Contributions (including rollover contributions) are made to the inherited IRA, or
You don't take the required minimum distribution for a year as a beneficiary of the IRA.
You will only be considered to have chosen to treat the IRA as your own if:
You are the sole beneficiary of the IRA, and
You have an unlimited right to withdraw amounts from it.

This all hinges on HOW VG processed this "spousal rollover":
1) Hopefully, they processed it as a non reportable transfer of the balance in the inherited IRA to your own IRA (election to assume ownership). I expect this is what occurred. If so, that transfer will NOT be reported on Form 1099R as there was no actual distribution to you, and your 2023 RMD will be eligible for the Uniform Table using your age in 2023 and the inherited IRA balance on 12/31/2022. In effect, you would be treated as having owned this IRA for the entire year of 2023.

2) Not so good if VG issued a distribution from the inherited IRA which would generate a 1099R coded 4 and part of that distribution would be your beneficiary RMD (Table I) and not eligible for rollover because that portion was a beneficiary RMD.

3) Assuming this was done as the non reportable transfer, the following paragraph of the proposed Secure Act Regs confirm the correct treatment, which is actually the same as it has been pre Secure, just more currently stated. Note that Sec 401(a)(9)(A) refers to the RMD of an owner (new owner is you under Uniform Table):

Effect of election.
Following an election described in paragraph (c)(1) of
this section, the surviving spouse is considered the IRA owner for whose benefit
the trust is maintained for all purposes under the Internal Revenue Code
(including section 72(t)). Thus, for example, the required minimum distribution for
the calendar year of the election and each subsequent calendar year is
determined under section 401(a)(9)(A) with the spouse as IRA owner and not
section 401(a)(9)(B) with the surviving spouse as the deceased IRA owner's
beneficiary.

[fred9]

Thank you Alan!!!

I will contact VG and post what I learn.

[fred9]

Success!
Thank you again, Alan!

I spoke with change of ownership unit who said, yes, the balance in the inherited IRA to my IRA was processed as a non reportable transfer. Then I spoke with the RND unit and they recalculated my 2023 RMD using the Uniform Table and the values of both IRA's as of 12/31/2022. Their RMD was about $1,000 less than what I had calculated but, not surprisingly, I did not question their number.

Am I correct in thinking that all my time and angst on this could have been avoided if, after I told VG that my wife had died, Vanguard had either told me I had three options on how to handle her IRA or just automatically rolled it into my IRA as a non reportable transfer? If so, I plan to say/write that to VG.

Fred9

[secondcor521]

Am I correct in thinking that all my time and angst on this could have been avoided if, after I told VG that my wife had died, Vanguard had either told me I had three options on how to handle her IRA or just automatically rolled it into my IRA as a non reportable transfer? If so, I plan to say/write that to VG.

I think people miss that Vanguard is an investment firm, not a tax advisory firm nor general financial planning firm. Because of who and what they are, they tend (in my experience) to steer very clear of anything close to tax or financial planning items. I would consider what to do with a deceased spouse's IRA clearly in those two areas - the options you're referring to are spelled out in an IRS publication, and RMDs (which are affected by which option you choose) are a tax-related item.

At the most, Vanguard might say "you have options, talk to your tax or financial planning professional". But if they didn't, I wouldn't place the responsibility on them. It's on me after a major life event to figure out what my options are, research them, then decide which one is best for me and my family.

Do you have a CPA or a financial planner who helps with your taxes and financial planning? If so, did you talk with either or both of them after your wife passed away?

[tibbitts]

Success!
Thank you again, Alan!

I spoke with change of ownership unit who said, yes, the balance in the inherited IRA to my IRA was processed as a non reportable transfer. Then I spoke with the RND unit and they recalculated my 2023 RMD using the Uniform Table and the values of both IRA's as of 12/31/2022. Their RMD was about $1,000 less than what I had calculated but, not surprisingly, I did not question their number.

Am I correct in thinking that all my time and angst on this could have been avoided if, after I told VG that my wife had died, Vanguard had either told me I had three options on how to handle her IRA or just automatically rolled it into my IRA as a non reportable transfer? If so, I plan to say/write that to VG.

Fred9

I'm not an expert but if there are 3 choice I would not expect any firm to choose one as a default. My own experience in similar situation has been that the (other) firm did inform me about choices and discussed them with me to help me understand, but didn't suggest that I choose one or the other; they just explained what the options were. So yes it was disappointing if Vanguard didn't at least say you had choices and that you should seek further information. But I wouldn't expect them to make a choice for me, or to recommend one choice vs. another.

[fred9]

Thank you for your comments.
It's all on me. I understand VG does not give financial or tax advice or guidance. I have been with them for over 40 years.
I don't have a financial planner or CPA/tax advisor.

I should not have written that VG should have a default choice - that's not their business. That's what they did and I didn't like their choice.

So I will say that VG should not move the IRA of the diseased until the beneficiary choses one of the options.

[Target2019]

Success!
Thank you again, Alan!

I spoke with change of ownership unit who said, yes, the balance in the inherited IRA to my IRA was processed as a non reportable transfer. Then I spoke with the RND unit and they recalculated my 2023 RMD using the Uniform Table and the values of both IRA's as of 12/31/2022. Their RMD was about $1,000 less than what I had calculated but, not surprisingly, I did not question their number.

Am I correct in thinking that all my time and angst on this could have been avoided if, after I told VG that my wife had died, Vanguard had either told me I had three options on how to handle her IRA or just automatically rolled it into my IRA as a non reportable transfer? If so, I plan to say/write that to VG.

Fred9

I've read your posts, and feel the angst.

My first thought is that a very good company would have an FAQ, message or letter that you would receive. In it would be a reminder to visit a link or two where options and other important things would be addressed in a general sense. I would think that mentioning options would be on the checklist of the associate who spoke with you on the phone.

TBH, I don't know exactly how the big three handle this, but now that I hear of your experience, I will add something to my list of instructions to explain the new options.

Over the last 5 years we've become more Schwab-centric. All company retirement accounts were rolled over to Schwab instead of Vanguard. Vanguard still has my SEP-IRA and our Roth accounts, totaling about 35% of all invested. My wife will go to Schwab when the time comes for instructions on what forms to complete, etc. If we still have Vanguard that will happen with a phone call, or perhaps I will download the form(s) now.

I wish you well in your journey, and I was saddened to hear about your wife.

[hudson]

Summary of DOB RMD ages:
Prior to 7/1/1949 70.5
7/1/1949 to 12/31/1950 72
1951-1959 73
After 1959 75

That confirms that I'm on the right track. Thanks!
All of the long articles are confusing. The above is simple.
The above boils it all down in just a little space.

[cadzan]

'59 baby here. Does the RMD have to start in the year that you turn 73 or the year following?

The year you turn 73, although you can defer until April 1 of the following year, but then you will take two RMD’s that year.

Thank you.

If I were to turn 73 in 2025 and I choose to defer RMD's until April 1 of 2026, can I do a backdoor Roth conversion in 2025?

The IRS says no conversions before the RMD is taken. Confused. I'm guessing I can't but am looking for confirmation.

[rkhusky]

'59 baby here. Does the RMD have to start in the year that you turn 73 or the year following?

The year you turn 73, although you can defer until April 1 of the following year, but then you will take two RMD’s that year.

Thank you.

If I were to turn 73 in 2025 and I choose to defer RMD's until April 1 of 2026, can I do a backdoor Roth conversion in 2025?

The IRS says no conversions before the RMD is taken. Confused. I'm guessing I can't but am looking for confirmation.

You can’t do a Roth conversion in 2025 if you wait to 2026 for your 2025 RMD. If you want to do a Roth conversion in 2025 you will need to do the RMD in 2025 too, and before the conversion.

[cadzan]

You can’t do a Roth conversion in 2025 if you wait to 2026 for your 2025 RMD. If you want to do a Roth conversion in 2025 you will need to do the RMD in 2025 too, and before the conversion.

Yeah, I though so. Thanks for the confirmation.

[WoodSpinner]

There was a drafting error in the Secure 2.0 legislation regarding the increase in RMD age for plan owners, specifically for those born in 1959. Congress has advised the IRS by letter of their intent, to be followed by technical correction in a future bill.

The end result is that the RMD age for those born in 1959 will be 73, and for those born after 1959 the RMD age will be 75.

Summary of DOB RMD ages:
Prior to 7/1/1949 70.5
7/1/1949 to 12/31/1950 72
1951-1959 73
After 1959 75

Alan,

Do you have an official link that clarifies the RBD age for folks born in 1959?

I am having trouble finding the passed legislation that corrects this issue…

WoodSpinner