General Publications January 13, 2023

“States Must Align Distribution Age Rules With Secure 2.0,” Law360, January 13, 2023.

Extracted from Law360

On Dec. 29, 2022, President Joe Biden signed into law the Consolidated Appropriations Act, an omnibus bill containing more than 4,100 pages' worth of appropriations and other provisions.

Significantly, the omnibus bill includes a set of reforms known as the Secure 2.0 Act of 2022, a development that the unclaimed property industry had been anticipating, which builds on the original Secure Act, passed in 2019.

In particular, Section 107 of the Secure 2.0 Act ultimately increases the required minimum distribution, or RMD, age for individual retirement accounts under the Internal Revenue Code from 72 to 75, which directly affects the escheatment rules applicable to IRA assets in many states.

The rapid enactment of this legislation before the end of 2022 came as somewhat of a surprise. Though the industry had been watching two similar, competing retirement bills — S. 4808, the Enhancing American Retirement Now Act; and H.R. 2954, the Securing a Strong Retirement Act — make their way through Congress in 2022, both stalled out over the summer.

The late inclusion of the Secure 2.0 Act in the omnibus bill was unexpected, to say the least.

Secure Act, Part 1

The Setting Every Community Up for Retirement Enhancement, or Secure, Act was signed into law on Dec. 20, 2019.

Among other things, that act updated the applicable RMD age for IRAs from 70½ to 72 — an IRA owner was not required to begin taking RMDs from their account until April 1 following the year in which they reach 72, rather than 70½.

This change applied to RMDs required to be made after Dec. 31, 2019, for individuals who attained age 70½ after such date.[1]

A Primer on RMDs and IRA Escheatment

Whenever Congress changes the RMD rules, it has a direct impact on the escheatment of IRA assets under state unclaimed property laws.

This is because a majority of those laws premise escheatment of such assets on the owner's failure to take a distribution or otherwise interact with the account after the required beginning date for taking RMDs pursuant to federal law, in addition to potential other requirements — for example, the requirement that mail sent to the owner has been returned as undeliverable.

Most states have adopted one of two similar provisions addressing when the dormancy period for determining whether an IRA is escheatable begins to run.

  • The 1995 Uniform Unclaimed Property Act triggers dormancy on the date "specified in the income tax laws of the United States by which distribution of the property must begin in order to avoid a tax penalty."
  • The 1981 Uniform Unclaimed Property Act triggers dormancy on the date that distribution of funds "in an individual retirement account or a retirement plan for self-employed individuals or similar account or plan established pursuant to the Internal Revenue laws of the United States" becomes mandatory under the terms of the account or plan.

That said, an increasing number of states have adopted the 2016 Revised Uniform Unclaimed Property Act, or RUUPA, which expressly references the date the owner turns age 70½ rather than the RMD date or other date tied to federal law.

Several of these RUUPA-adopting states subsequently updated their provisions — or deviated from RUUPA upon initial enactment — to reflect either age 72, in light of the first Secure Act, or a more general reference to the RMD date or federal law.

For example, Indiana's adoption of RUUPA in 2021 references the "date the apparent owner reaches the age at which the Internal Revenue Service requires a minimum distribution from the account," similar to the 1995 and 1981 uniform act standards.

Secure 2.0's Changes

Similar to the first Secure Act, the Secure 2.0 Act again changes the required beginning date for owners to take RMDs from their IRA accounts.

In particular, the act provides that for any individual who attains age 72 after Dec. 31, 2022, and age 73 before Jan. 1, 2033, the applicable age for RMDs is age 73. In addition, the applicable age for an individual who attains age 74 after Dec. 31, 2032, is age 75.

Thus, in states that have adopted an IRA provision similar to the 1995 uniform act or the 1981 uniform act, holders will need to update their unclaimed property rules engines to account for this immediate change in the RMD age from 72 to 73 and then ultimately to 75.

The new SECURE 2.0 Act rules apply to any IRA owner who was not yet age 72 on Jan. 1. For IRA owners who had attained age 72 before Jan. 1, the pre-SECURE 2.0 Act rules will apply — and thus no holder changes are required.

However, states that have adopted RUUPA, or otherwise refer to a specific age of the owner rather than reference the RMD date, need to — perhaps again — consider undertaking legislative efforts to ensure that the unclaimed property standard does not conflict with federal law.

States that continue to utilize age 70½ or that have adopted age 72 as the dormancy trigger should ideally replace those specific ages with a reference to the RMD date or federal law.

In the alternative — and at minimum — these states should replace the existing age with April 1 following the year the owner turns age 73 or 75 to be safe and to avoid having to make further legislative adjustments. Otherwise, customer IRAs will be at risk of escheating before the required beginning date for taking RMDs.

On the other hand, it is possible that federal law may preempt state unclaimed property laws in these circumstances.

Given that the escheatment of an IRA represents a taxable event for an owner, this is an issue that states should urgently address through legislative amendment.[2]

If states do not take action, custodians of IRAs will need to carefully consider their options of achieving balance between compliance with state unclaimed property law and the safekeeping of customer assets.



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Alex Wolfe
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