IRA required minimum distribution notifications: IRS provides relief for sending inaccurate RMD notices

Overview

The SECURE Act 2.0, passed on December 29, 2022, includes several individual retirement account (IRA) provisions. Some of these provisions are effective in 2023 while others are delayed until 2024 or later. One of the more significant changes made by the SECURE Act 2.0 is the age at which an individual must begin taking traditional IRA required minimum distributions (RMDs) was changed from age 72 to age 73, a provision effective after 2022. When keeping this in mind, IRA owners that were at least age 72 by the end of 2022 are subject to the previous rules, so to speak. In other words, anyone that was age 72 or older by the end of 2022 must take an RMD for 2023, and these IRA owners should have been provided with a ‘notification’ from their IRA custodian or trustee by January 31, 2023, indicating this. On the other hand, IRA owners that will attain age 72 in 2023 should not have received notification that an RMD must be taken for 2023 as they do not reach mandatory distribution status until 2024, the year they attain age 73 under the new rule.

Timing dilemma

Because the SECURE Act 2.0 was enacted at the end of December and RMD notices were required to be provided to IRA owners by the end of January, many IRA custodians and trustees were unable to remove IRA owners that attain age 72 in 2023 from their RMD notice recipient list. As a result, many IRA custodians and trustees sent these individuals a notice indicating an RMD must be taken for 2023, which is not the case. The Wolters Kluwer Tax Advantaged Accounts team took a significant number of calls on this issue during January and the first part of February. Though we could not provide specific guidance on the steps an IRA custodian or trustee should take if it sent RMD notices to IRA owners that attain age 72 in 2023, it seemed that some follow-up communication with these IRA owners would be necessary.

IRS Notice 2023-23 provides relief

On March 7, 2023, the IRS issued Notice 2023-23 proving guidance and relief as it relates to RMD notices that were sent to IRA owners that attain age 72 in 2023. In Notice 2023-23 the IRS states the following:

“Under this relief, the Internal Revenue Service (IRS) will not consider an RMD statement provided to an IRA owner who will attain age 72 in 2023 to have been provided incorrectly if the IRA owner is notified by the financial institution no later than April 28, 2023, that no RMD is actually required for 2023.”

Conclusion

As it relates to 2023 RMD statements that were sent to IRA owners who should not have received one, IRS Notice 2023-23 provides the answers many custodians and trustees have been waiting for. Now it is just a matter of providing these IRA owners with a second ‘notice’ explaining they aren’t required to take an RMD for 2023. IRA custodians and trustees should consider maintaining compliance documentation of actions taken. Additionally, when sending the 2022 Form 5498s to the IRS (and to IRA owners), custodians and trustees will want to ensure there is not a check in Box 11 or any entries in Boxes 12a or 12b (i.e., RMD information related boxes) for IRA owners that attain age 72 in 2023.