Relief For Some 2023 IRA RMDs

Article Highlights:

• IRA Owners Turning 72 in 2023.
• Required Minimum Distribution Not Required Until April 1, 2025.
• 60-Day Rollover Period
• Rollover Period Extended Until September 30, 2023.

On July 14, 2023, the IRS issued Notice 2023-54 announcing that traditional IRA owners who will attain age 72 in 2023 (that is, individuals born in 1951) will have to take their first required minimum distribution (RMD) by April 1, 2025, rather than April 1, 2024.

This delay in the required beginning date means that these IRA owners (who, prior to enactment in late December 2022 of the SECURE 2.0 Act, would have been required to take minimum distributions from their IRAs for 2023) will have no RMD due from their IRAs for 2023. Thus, the first distribution for these IRA owners that will be treated as an RMD will be a distribution made for 2024, not 2023.

The significance of this for an individual having their 72nd birthday in 2023 is that IRA distributions in 2023 mischaracterized as 2023 RMDs will be eligible to be rolled back into their IRA account. Thus, the portion of the distribution that is redeposited will avoid tax in 2023. Tax law doesn’t allow RMDs to be rolled over, so this is why the IRS is identifying these distributions as mischaracterized RMDs and eligible for rollover.

The normal period allowed for a rollover is 60 days from the time of the distribution. But to accommodate those who would have preferred not to take this mischaracterized distribution in 2023, the IRS extended the 60-day rollover period to September 30, 2023 for IRA owners and IRA owners’ surviving spouses.

There is also a 12-month waiting time between IRA rollovers but for purposes of the extended rollover period for mischaracterized distributions, the rollover is allowed even if the IRA owner or their surviving spouse has rolled over a distribution within the last twelve months. However, making such a rollover of the mischaracterized IRA distribution would prevent the IRA owner or surviving spouse from rolling over another IRA distribution in the next twelve months.

If you have questions, please contact this office.

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