• Internal Revenue Service issues SAFE Act regulations—On July 18, 2024, the Treasury and the IRS published final regulations (the final rules) under section 401(a)(9) of the Internal Revenue Code regarding required minimum distribution (RMD) requirements with respect to plans and accounts of retirement. These final rules incorporate the changes made by the Designating Every Community Retirement Improvement Act of 2019 (the SECURE Act) and the SECURE 2.0 Act of 2022 (the SECURE 2.0 Act). Treasury and the IRS also issued proposed regulations (proposed regulations) addressing other RMD issues under the SECURE 2.0 Act.

The IRS issued proposed rules under IRC Section 401(a)(9) in early 2022 under the SECURE Act. The final rules largely adopt these proposed rules, with certain changes in response to comments on the proposed rules and the SECURE 2.0 Act enacted after the proposed regulations were issued. One notable difference from the proposed rules is the inclusion of a broader exception to the general rule that section 401(a)(9) cannot be applied separately to the separate interests of each of the beneficiaries of an express trust. (An express trust is a trust designated as the beneficiary of a retirement plan that meets certain requirements that enable certain beneficiaries of the trust, rather than the trust itself, to be treated as designated beneficiaries of the plan, thereby making them “beneficiaries designated” that can spread the distributions over a longer period of time.) Under the final rules, if the terms of an express trust provide that it be divided immediately upon the death of the participating plan owner into separate see-through trusts and certain special accounting requirements are met, section 401(a)(9) will apply separately to each separate trust. This will greatly simplify beneficiary designations when a client wants special sub-trusts (for example, for a client's children) created under a client's revocable trust on their death to be beneficiaries of a client's retirement plans . Previously, the separate subtrusts themselves (and the formula for allocation among them) had to be included in the plan's beneficiary designation forms to ensure that section 401(a)(9) would apply to each subtrust separately to determine the RMD requirements of each subtrust. Now, the client should be able to simply designate their revocable trust on beneficiary designation forms.

Also of note is the final retention of the controversial rule requiring a beneficiary of a plan participant/account owner who dies after such participating owner was required to begin receiving annual distributions (ie, after the required commencement date by such Participant/Owner) continue to receive such annual distributions. After the passage of the SECURT Act and prior to the issuance of the proposed rules (which included this rule), many practitioners assumed that no distribution was required until the end of the 10th year of the participant/owner's death (at which time the entire interest of the the participant/owner in the plan/account was to be distributed to the beneficiary); however, the final rules make it clear that annual distributions must continue AND all interest must be distributed before the end of the 10-year period.