IRS again delays applicability date for final RMD regulations 

Under SECURE 2.0, a surviving spouse who is the participant’s sole beneficiary and is entitled to life-expectancy payments may elect to be treated as the participant for certain RMD purposes. The proposal would make this treatment automatic if the participant dies before RMDs start, but not after.

The proposal would prohibit defined contribution (DC) plans from treating a surviving spouse’s beneficiary as an “eligible designated beneficiary” when the spouse dies after starting RMD payments (or after payments should have started). This means any remaining benefit would need to be paid in full within 10 years of the spouse’s death.

SECURE 2.0 eliminated RMDs before death from Roth accounts in employer-sponsored plans. For participants with both pretax and Roth accounts, the proposal would clarify that payments from the Roth account during the participant’s life would not count towards the RMD owed from the pretax account.

The proposal includes a provision clarifying that when a corrective distribution is made to reduce the excise tax on missed RMDs to 10%, the distribution counts only toward the missed RMD and not toward the RMD due for the year in which the correction occurs. (IRS did not delay the applicability date for a similar provision relating to corrective distributions from IRAs.)

A plan participant’s former spouse may continue to be the designated beneficiary of a QLAC with a joint-and-survivor feature if required by a qualified domestic relations order (QDRO) or other separation agreement. The proposal would clarify that other separation agreements satisfy this requirement only if the plan isn’t subject to either the Internal Revenue Code or ERISA’s QDRO rules. 

SECURE 2.0 allows DC plans to permit participants who receive a portion of their account as an annuity to count those payments toward the RMD due from their plan account. The proposed regulations address how to value a participant’s annuity for this purpose and require a specific valuation methodology to be used starting with RMDs for the 2026 calendar year. IRS’s extension of the applicability date for the final regulations presumably also delays the requirement to use the specified valuation methodology, but IRS’s announcement doesn’t address this specifically. DC plan sponsors considering using a different methodology before the final regulations apply might want to consult with legal counsel.