The IRS is delaying until 2026 the closing of a key loophole that caused confusion for a subset of employees in a regulation that allowed workers to keep money invested in their workplace retirement plans longer.
Tax regulators issued a notice Wednesday deferring the anticipated effective date of a separate supporting regulation applying to workers born in 1959 that the IRS proposed alongside the broader rule finalized in July.
The overarching rule will begin boosting required minimum distribution ages until workers eventually reach 75 in 2033.
The proposed supporting regulations increase the RMD to 73 for the narrow set of workers born in 1959. Most workers born before that date must take funds out of their 401(k)s starting at 72, while employees born on or after the first day of 1960 would need to start drawing down their accounts at 75.
Congress allowed workers to accrue more savings longer in tax-deferred 401(k), 403(b), and individual retirement accounts when it passed the SECURE 2.0 Act in 2022, but a quirk in the drafting of the law technically assigned individuals born in 1959 a required start date for distributions based on both the years they turned 73 and 75.
Currently, retirees have to begin drawing down their accounts once they reached 70½, but the implementation date for boosted RMDs will begin taking effect on Jan. 1.
The proposed rules that will be delayed also clarify that distributions from designated post-tax Roth accounts can’t be used to satisfy RMD requirements and that, as a result, they are eligible for rollover distributions.
The rules also set a fair market valuation date for determining the portion of annuity that is subject to RMDs among other technical guidance.
