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Firm Criticizes Proposed RMD Regs, Requests Clarifications

MAY 24, 2022

Firm Criticizes Proposed RMD Regs, Requests Clarifications

DATED MAY 24, 2022
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May 24, 2022

Ms. Regina Johnson
The Department of the Treasury
Internal Revenue Service

Re: Proposed Regulations Relating to Required Minimum Distributions from IRAs
REG-105954-20
RIN 1545-BP82

Dear Ms. Johnson,

This comment letter is submitted on behalf of Wolters Kluwer in response to the proposed regulations relating to required minimum distributions (RMDs) from individual retirement accounts (IRAs) published in the Federal Register on February 24, 2022.

Wolters Kluwer is a leading provider of compliance solutions, technology and services to financial institutions of all sizes and in all communities throughout the United States. A vast majority of U.S. banks use Wolters Kluwer solutions including IRA establishment, amendment, and ancillary documents, and corresponding consulting and records management services.

Especially where the Form 5305 series has not been updated for several years, our customers rely on consistent revisions to the Wolters Kluwer IRA Disclosure Statements and Additional Information sections to stay abreast of IRA rules, including regulations and other IRS guidance. To say the least, since passage of the SECURE Act and compounded by the CARES Act, this has been a major challenge. However, as consumers have a right to a clear understanding of all aspects of IRAs which they establish, maintain, or inherit, we bring a team together to deeply analyze all IRS issuances and update our documents accordingly. Our updates are not just a recitation of the law or official guidance as we make an effort to provide information in a plain language, and easy to follow manner allowing the consumer to understand what this information means, or will mean, to their account. Not only are consumers entitled to this information, they need to be confident knowing that they can rely on the rules and regulations set forth at that time and that they will be provided with amendments in a manner that will provide them with sufficient and clearly understood notice to make subsequent changes as they choose or as may be necessary.

The February 24, 2022, IRS notice of proposed rulemaking (NPR), REG-105954-20, indicates it is simply a compilation of existing amendments (“to update the regulations to reflect the amendments made to section 401(a)(9)” by the SECURE Act); and it only “clarifies” certain issues that have been raised in public comments and private letter ruling requests.

Unfortunately, we are concerned that the proposed regulations are not clear and concise in providing specific rules to follow in this extremely complex area of law, especially regarding the RMD rules for beneficiaries. We find the examples provided in the proposed regulations to be very illuminating and helpful but then question why the Q & A format was removed from certain provisions and why some of the examples in the NPR Explanation of Provisions do not carry over into the amended sections. We are also concerned that the proposed regulations have a retroactive effect without providing specific safe harbor to consumers who have acted in good faith, and that this further reflects a failure to appreciate the great amount of time and effort it will take to provide consumers with updated, unambiguous and clearly understandable direction going forward.

To provide our customers and their consumers with precise compliance information, we would appreciate clarification, including examples, for the following issues arising after the death of an IRA owner and issues following the rollover of assets from a qualified plan by a beneficiary to an inherited (beneficiary) IRA:

  • § 1.401(a)(9)-1(b)(2)(iii)(C). More examples of the application of § 1.401(a)(9)-1(b)(2)(iii)(C) would be helpful, specifically adding examples of a spouse beneficiary dying in 2022, 2023, and 2024.

  • § 1.401(a)(9)-3. If a death occurs before the required beginning date (RBD), may a minor child of an IRA owner select a 10-year rule option per § 1.401(a)(9)-3(c)(5) at the outset, such as other eligible designated beneficiaries (EDBs) may have? If yes, what ramifications would apply at age of majority (21), if any? Would they be allowed another 10 years per § 1.401(a)(9)-3(c)(4)?

  • § 1.401(a)(9)-3(e) and § 1.401(a)(9)-4(d). When an IRA owner dies before the RBD and leaves a spouse beneficiary, is the spouse considered to be the IRA owner if such spouse beneficiary dies before midnight on December 31 of the decedent's age 72 year, or is it any earlier time?

  • § 1.401(a)(9)-4(e)(7). Does an IRA custodian/trustee need to collect or be provided documentation of a beneficiary's disability or chronically ill status as of the date of death?

  • § 1.401(a)(9)-4(e)(4) and (5). Does the determination of a beneficiary's disability or chronically ill status as of the date of death need to be in place and documented as of the date of death or can a determination be made after the fact but retroactive to the date of death?

  • § 1.401(a)(9)-4(f), § 1.401(a)(9)-5(f), and § 1.401(a)(9)-8. Since you are trying to address common Letter Ruling issues related to qualifying 'see-through' trusts, can you also address the ability for multiple beneficiaries of a see-through trust to transfer specific interests in the trust to separate inherited IRAs, including what factors must be met to take advantage of this? If the see-through trust has multiple EDBs and the oldest trust beneficiary dies in 2020 or later are there any communication guidelines for IRA custodians/trustees to notify the other custodians/trustees that the 10-year rule is in effect?

    • Related to this guidance, we request that related reporting guidance (Form 5498 titling) be provided to IRA custodians/trustees for these resulting inherited IRAs.

  • § 1.401(a)(9)-5(d)(1)(i). Can any one of multiple named primary beneficiaries satisfy a decedent's year of death RMD (assuming death after the RBD) or is each beneficiary required to take their share of inherited IRA assets? Assuming multiple EDBs, if one beneficiary can satisfy the decedent's year of death RMD, does this in effect eliminate the ability to utilize the separate accounting rules for subsequent year RMD calculations for the EDBs?

  • § 1.401(a)(9)-5(e)(1). Please confirm that the rules in § 1.401(a)(9)-5(e)(1) state the rules in § 1.401(a)(9)-5(e)(2) – (5) will not apply to successor beneficiary(s), or to any subsequent successors to those beneficiaries, if employee/IRA owner and original beneficiary (or oldest beneficiary if either there are multiple beneficiaries with no separate accounting or multiple beneficiaries in a qualifying see-through trust) both die prior to the § 1.401(a)(9)(H) effective date (1-1-2020).

  • § 1.401(a)(9)-5(e)(5). The last explanation example for this section (NPR Explanation of Provisions I.E.3.c. last paragraph, third column on page 10514) describes the life expectancy limit for older eligible designated beneficiaries. We believe the age for the beneficiary should be 81 when applying the formula per § 1.401(a)(9)-5(d)(3)(iii). We understand what was used results in the same distribution period, but the example should nonetheless be corrected.

  • § 1.402(c)-2(j)(3)(iii)(E). For purposes of clarity, we would appreciate the Example for calculating a hypothetical RMD be expanded to show hypothetical RMDs for subsequent calendar years, thus eliminating ambiguity.

  • § 1.408-8. Please address in § 1.408-8, and/or possibly elsewhere, that a spouse beneficiary treating an IRA as their own in the year after the year of death, where the spouse beneficiary is age 72 or older during such year, must add (or take into account) the beneficiary's account balance as of 12/31 of the prior year for the purpose of satisfying the RMD for the year treated as their own.

  • § 1.408-8(b)(3). This section states that an IRA owner must satisfy RMD requirement for all IRAs owned prior to completing a rollover. Does this requirement also separately apply to all IRAs a spouse beneficiary inherits from the same decedent when completing a distribution and rollover to his/her own IRA or to another spouse beneficiary IRA?

    • Additionally, since an IRA owner may convert assets to a Roth IRA, less any RMD (per § 1.408A-4 Q&A -6), does the requirement to satisfy all IRA RMDs in § 1.408-8(b)(3) apply to conversions?

  • § 1.408-8(c). Address the deadlines for a spouse beneficiary to treat an IRA as his/her own for IRA owners that died in a year prior to 2021 or 2022. These could be IRA spouse beneficiaries that were 72 or older in 2020 or 2021 or of any age prior to inheriting an IRA in 2019 or earlier. Will there be unlimited availability to treat inherited IRAs as their own or will there be forced rollovers for previous year (pre-2021 or pre-2022) deaths. This may fall under transition guidelines.

  • § 1.408-8(c). If a spouse beneficiary of an IRA owner who died before the RBD had selected the 10 year rule and had reached age 72 (or the IRA owner had reached age 72) before the end of the 10 year rule period, would by not taking the assets by the end of the 10th year cause the spouse beneficiary to be deemed to automatically have elected to treat the IRA as his/her own under § 1.408-8(c)(2)(i) and avoid the rollover limitations through year 9 (including hypothetical RMDs to be taken) and avoid the treat-as-own (TAO) deadline in § 1.408-8(c)(1)(ii)? A similar extension of the TAO deadline occurs when life expectancy distributions are not taken.

    • Alternatively, if you are inadvertently stating that the deemed election described in § 1.408-8(c)(2)(i) is not allowed because of § 1.408-8(c)(1)(ii), then we need guidance to address this.

  • § 1.408-8(d) or § 1.402(c)-2. Can a spouse beneficiary of a traditional (including SEP) IRA roll over or roll over directly to his/her participant account in a qualified plan?

  • § 1.408-8(e)(2). Please specifically state that if accounts may be aggregated by a beneficiary of the same decedent for purpose of satisfying an RMD, that the beneficiary may combine these multiple IRAs into single IRA for the beneficiary.

  • § 1.408-8(e)(2). This section states that IRAs inherited from the same decedent may be aggregated. Does this apply to an EDB if the IRA owner died before the RBD and the EDB elected the 10-year rule and life expectancy distributions on separate inherited IRAs? If so, would this limit the availability to aggregate RMDs and combine such accounts of the same decedent?

  • § 1.408-8(g)(2)(v). What exactly is a 'deemed' distribution with respect to a collectible pursuant to section 408(m) and when would it occur?

  • Transition rules.

    • If an IRA owner died in 2020 after the RBD and a DB (under 10-year rule) did not take an annual RMD in 2021 based on single life expectancy method, what transition rules apply to such a beneficiary?

    • It would also be beneficial to provide transition rules where appropriate for deaths occurring in or after 2020 through the effective date of final regulations.

As stated above, the effective date and retroactive aspects of these proposed rules do not take into consideration the time and effort to place proper corresponding documentation into the hands of the ultimate consumers. Based solely on the language in the proposed regulations, Wolters Kluwer will need to make substantial revisions to our IRA establishment, amendment and ancillary (e.g., RMD notices and all withdrawal) forms. Revising these forms will take several months to provide to our direct customers and close to a year for several of our partner vendors to implement with their customers. If the strong sentiments of all of those providing public comment are given consideration and these proposed regulations are changed in any manner before final regulations are published, that may add clarity but will further delay the associated revisions for these same forms. Also, time must be accorded for the imperative need for all forms and associated communications to be unambiguous and understandable to the ultimate consumers, and not left to industry prognosticators doing their best to interpret the IRS' intentions.

Therefore, we respectfully request the IRS to amend RMD NPR (REG-105954-20, RIN 1545-BP82) and to extend any effective date to a minimum of one (1) calendar year after the final rules are published. Until such time, we also request that taxpayers are provided safe harbor for their good faith interpretations of the existing rules. Further, in light of the proposed regulations and our stated questions and concerns, we encourage the IRS to retain the position that there is no requirement for IRA custodians/trustees to provide RMD amount calculations to IRA beneficiaries.

Wolters Kluwer appreciates the opportunity to comment on these proposed IRA RMD regulations and your consideration of our requests. If you have any questions for us, please feel free to contact us at leslie.mcnally@wolterskluwer.com.

Respectfully submitted,

Leslie T. McNally, J.D.
Consultant, Regulatory Compliance Analysis
Wolters Kluwer
Compliance Center of Excellence
Banking Compliance

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