New RMD Aggregation and Rollover Rules

The IRS proposed regulations published in February provide guidance that primarily focuses on the death distribution rules for beneficiaries based on the changes made by the SECURE Act of 2019. The new guidance replaces certain existing regulations, one of which is §1.408-8, Distribution requirements for individual retirement plans. Part of these regulations addressed the prohibition of rolling over an IRA required minimum distribution (RMD); however, the IRS has made significant changes regarding this rule.

Old IRS Rule

Federal law mandates that a Traditional (including SEP or SIMPLE) IRA RMD amount may not be rolled over. Under the old regulations, the IRS’s interpretation of the law was that an amount distributed from an IRA was treated as an RMD to the extent that the total RMD for the year “for that IRA has not been satisfied.” In other words, for an IRA owner with more than one Traditional IRA who took a distribution from one of their IRAs prior to satisfying the RMD amount for the year, the amount of the distribution eligible for rollover was reduced by the amount of the RMD for only that (one) IRA.

New Rule Aggregates IRA RMD Amounts

With the proposed regulations, the IRS rewrote §1.408-8 to provide that any amount distributed during a calendar year from any IRA of that IRA owner is treated as an RMD to the extent that the total RMD for the year “from all of that IRA owner’s IRAs” has not been satisfied (either by a distribution from the IRA or from another IRA). Consequently, for an IRA owner with more than one Traditional IRA who takes a distribution from one of their IRAs prior to satisfying the total RMD amounts for the year, the amount of the distribution eligible for rollover is reduced by the total amount of RMDs for all of their Traditional, SEP, and SIMPLE IRAs. The proposed regulations are to be effective for 2022 and later RMDs.