New RMD Age and Plan Delay

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare. We bring Case of the Week to you to highlight the most relevant topics affecting your business.  

A recent call with a financial advisor from California dealt with a question on 401(k) plans and required minimum distributions (RMDs). The advisor asked: “Several of my clients’ qualified retirement plans include the ability for certain participants who are still working to delay the required beginning date (RBD) for taking required minimum distributions (RMDs) until after retirement. Does the change in the RMD age from 72 to 73 for 2023 through 2032 affect the ability to delay RMDs past retirement if their plans give them that option?”

Highlights of Discussion 

Great question. Section 107 of SECURE Act 2.0 of 2022 changes the RMD age in the Internal Revenue Code (IRC) from age 72 to “the applicable age,” which is further defined as 73 for years 2023 through 2032 (and 75 for 2033 and years thereafter). The ability for some workers to delay RMDs until after retirement (even after reaching the applicable age) is driven by plan design and Treasury Regulations.

Pursuant to Proposed Treasury Regulation §1.401(a)(9)–2(b)(3), plan sponsors have the option (depending on the document they use) to allow participants who 1) continue to work and 2) are not five percent owners (i.e., participants who own five percent or less of the employer) to wait to begin RMDs until April 1 of the year following the later of the calendar year in which the employee— 

• Attains age 72; and 

• Retires from employment with the employer maintaining the plan. 

We currently have proposed RMD regulations, and the Treasury Department has indicated final regulations at 1.409(a)(9) are imminent. We fully anticipate the regulations will reflect the new “applicable age” language of SECURE 2.0 and will continue to allow eligible participants to delay RMDs until after retirement if their plans currently allow the option.  

Conclusion

SECURE 2.0 changes the current RMD age of 72 to 73 for years 2023 through 2032 (and to 75 for 2033 and years thereafter).  The Treasury Department is schedule to issue final treasury regulations to provide further implementation guidance in the near future. Plans with the appropriate language may still allow non-five-percent owners who are still working to delay their RMDs until after retirement.