What the New RMD Proposals Change About Your Retirement Withdrawals

The IRS published proposed regulations in July 2024 that address several open questions left by the final required minimum distribution (RMD) rules issued earlier that year. These proposals are not final, but they reflect the IRS’s intended direction. Several of them affect distribution planning decisions being made right now.

What the Proposed RMD Regulations Change

• People born in 1959 have an applicable RMD age of 73, not 75. This resolves a drafting conflict in the SECURE 2.0 Act.
• Distributions from designated Roth accounts do not count toward satisfying your RMD for the year, which means they can be rolled over to a Roth IRA if they otherwise qualify.
• Surviving spouses who inherit a retirement account get expanded options, including an automatic election to be treated as the employee and to use the more favorable Uniform Lifetime Table.
• A corrective distribution for a missed RMD reduces the excise tax from 25% to 10%, but it does not replace the current year’s RMD. Both amounts must be taken.
• Qualifying longevity annuity contracts (QLACs) with joint and survivor benefits survive a divorce if a qualified domestic relations order is in place before annuity payments begin.
• Partial annuitization gets clearer valuation rules. If you use part of your defined contribution plan to buy an annuity, the proposed regulations specify how to value that contract when calculating your RMD.

If You Were Born in 1959, Your RMD Starts at 73

SECURE 2.0 created a drafting conflict that left anyone born in 1959 caught between two provisions. One set the applicable RMD age at 73. The other set it at 75. The 2024 final regulations acknowledged the ambiguity but reserved the answer for later guidance.

The proposed regulations resolve it. Your required beginning date is April 1 of the year after you turn 73, consistent with the rule for those born between 1951 and 1958. Under this proposal, a first RMD would be due by April 1, 2033.

If you have been planning around age 75, those projections need to be revisited with a tax advisor once the rules are finalized. A two-year shift in your required beginning date changes the entire distribution timeline, including how much comes out each year and the tax impact of those withdrawals.

Roth 401(k) Withdrawals Don’t Count Toward Your RMD

Section 325 of the SECURE 2.0 Act eliminated the RMD requirement for designated Roth accounts in workplace plans during the account owner’s lifetime. This aligned their treatment with Roth IRAs. The 2024 final regulations left one question open: how do these distributions interact with RMDs when you also hold a traditional account in the same plan?

The proposed regulations answer directly. If you hold both a traditional and a designated Roth account in your 401(k), you cannot pull from the Roth side and apply it against what the traditional side owes.

The upside is the flip side of that rule. Because designated Roth distributions are not treated as required minimum distributions, they remain eligible for rollover to a Roth IRA. That preserves tax-free growth on those assets instead of forcing them into an annual withdrawal that cannot be returned to a tax-advantaged account.

Surviving Spouses Get a Better Distribution Table

The surviving spouse provisions are among the most consequential changes in the proposed regulations. Section 327 of the SECURE 2.0 Act directed the IRS to expand spousal options, and the proposed rules deliver on that.

When an employee dies before their required beginning date and the surviving spouse is the sole beneficiary, the spouse is now automatically treated as the employee for RMD purposes. No election is required. The spouse uses the Uniform Lifetime Table rather than the Single Life Table. This produces a longer distribution period, which means smaller annual withdrawals and more time for the account to continue growing.

Planning implications for estate and distribution planning:

• The surviving spouse’s required beginning date is tied to the date the deceased employee would have reached the applicable age, not the spouse’s own age.
• If the surviving spouse dies before distributions begin, the spouse’s own beneficiaries receive distributions under the same rules that would apply to the employee’s beneficiaries.
• When the employee dies on or after their required beginning date, the automatic election does not apply. However, a plan can make the election the default under its terms, so the spouse still receives the benefit without needing to take action.

Anyone reviewing beneficiary designations or updating estate planning documents that involve a retirement account should factor these rules into the analysis.

Missed an RMD? The Penalty Is Lower, but You Still Owe Both Years

Failing to take the full required amount by the deadline triggers an excise tax under Section 4974 of the Internal Revenue Code. SECURE 2.0 reduced the base rate from 50% to 25%. It further reduced the rate to 10% if the shortfall is corrected within the applicable window. Per IRS Form 5329 instructions, this tax is reported on the account holder’s individual return.

The proposed regulations add two clarifications worth understanding.

First, a corrective distribution does not count toward the current year’s RMD. If you missed last year’s distribution and take it this year, you still owe this year’s full RMD separately. The IRS’s position is that a missed distribution from one year cannot borrow credit from the next year’s obligation.

Second, corrective distributions cannot be rolled over. They are treated as required minimum distributions for rollover purposes, consistent with the general rule under IRC Section 402(c). If you are working through a missed RMD, understanding the full picture before taking action is worth doing with an advisor in your corner.

QLACs Survive a Divorce if the Order Comes Before Payments Start

A qualifying longevity annuity contract (QLAC) is an annuity purchased with retirement account funds that defers income payments until advanced age, often 80 or 85. The contract is excluded from the account balance used to calculate RMDs until payments begin.

The proposed regulations address what happens when a QLAC was purchased with joint and survivor benefits but the couple divorces before payments start. Under the proposed rules, the divorce does not affect the permissibility of the joint and survivor benefits. This applies when a qualified domestic relations order (QDRO) under IRC Section 414(p) addresses the annuity before payments commence. For governmental plans, a qualifying divorce or separation instrument serves the same purpose.

If you hold a QLAC with joint and survivor benefits and divorce is a possibility, confirm that your domestic relations order addresses the annuity before payments begin.

How a Partial Annuity Affects Your RMD Math

Some defined contribution plans allow you to use a portion of your account to purchase an annuity while keeping the rest invested. This is called partial annuitization. When you do this, calculating your RMD becomes more complex because you now have two pieces: an annuity contract and a remaining account balance.

The proposed regulations address how these two pieces can be treated together for RMD purposes. A plan may permit you to aggregate the fair market value of the annuity contract with your remaining account balance. Payments from the annuity would then count toward satisfying your overall RMD for the year.

For this aggregation to work, the annuity contract must be valued as of December 31 of the year before the distribution year. Beginning with the 2026 distribution year, the valuation must follow specific methods set forth in the regulations. This gives plan administrators and annuity issuers a consistent standard.

If you have partially annuitized your retirement account or are considering doing so, ask your plan administrator whether the aggregation option is available. The answer affects how your RMD is calculated and how much flexibility you have in meeting the requirement.

Trust Beneficiaries Can Now Receive Distributions Directly

When a see-through trust is named as a retirement account beneficiary, the trust’s beneficiaries can be treated as designated beneficiaries for RMD purposes. A see-through trust is one that meets IRS requirements for looking through to the underlying beneficiaries rather than treating the trust itself as the beneficiary.

The 2024 final regulations required that each beneficiary’s share be held in a separate sub-trust for individual RMD treatment to apply. The proposed regulations create an exception. If one or more beneficiaries are to receive their interests outright, directly in their own name rather than through a sub-trust, that does not disqualify the arrangement. This removes a technical barrier for families and trust drafters who preferred direct distributions over sub-trust structures for some beneficiaries.

These Rules Aren’t Final Yet

These are proposed regulations. The IRS published them in the Federal Register on July 19, 2024, and held a public hearing in September 2024. Final regulations have not been issued as of the date of this article.

When finalized, the regulations are proposed to apply to distributions for calendar years beginning on or after January 1, 2025. In the meantime, the IRS has indicated that taxpayers and plan administrators may rely on the proposed regulations for the periods covered.

For individual account holders, the most time-sensitive issues are the 1959 birth year determination and the surviving spouse election. For plan administrators, the Roth account changes and trust beneficiary rules carry compliance implications worth reviewing before updating plan documents or distribution procedures.

Working with WhippleWood

WhippleWood works with individuals, families, and business owners across Denver, Littleton, and the Colorado Front Range on retirement distribution planning and tax compliance. If you were born in 1959 and planned around age 75, or if you have inherited a retirement account as a surviving spouse, these proposed changes may affect your timeline. Our tax team can help you evaluate what these rules mean for your specific situation.

Contact us to schedule a distribution planning review.