ABA raises compliance concerns about RMD proposal for IRAs

The American Bankers Association this week raised concerns about the Internal Revenue Service’s proposed required minimum distribution rule for retirement plans and IRAs, implementing Sections 114 and 401 of the bipartisan Secure Act of 2019. The proposal affects administrators, participants, owners, beneficiaries of plans and IRAs, as well as addresses the act’s requirements for designated beneficiaries, trusts as plan and IRA beneficiaries including multi-beneficiary trusts, see-through trusts and conduit trusts.

Among other things, the Secure Act amended the Internal Revenue Code to require complete distributions within 10 years from inherited IRAs belonging to non-eligible beneficiaries, no longer allowing distributions to be “stretched” over the life expectancy of the beneficiary. In the comment letter, ABA flagged concerns regarding the IRS’ interpretation of the 10-year rule to require distributions in years one through nine if the decedent had already started taking distributions before death. Many banks had been communicating to IRA beneficial owners that they were not required to take RMDs each year, but only that they must take complete distribution within 10 years.

“We have concerns from an administrative and compliance perspective on aspects of the proposal, in particular the interpretation of the 10-year rule when the employee has started taking distributions, the proposed effective date, waivers of RMD accumulations and access to confidential client information,” ABA said. The association also urged the IRS to extend the proposed rule’s effective date until 12 to 18 months after a final rule is issued and to provide additional relief.