Broker-Dealers: IRA Amendments Require Changes to Escheat Processes

by Michael Rato

Financial institutions holding Individual Retirement Accounts (IRAs) should review their policies in light of the federal Setting Every Community Up for Retirement Enhancement (SECURE) Act, Public Law 116-94.   This legislation, enacted on December 20, 2019, as part of a group of spending bills, is intended to assist Americans in saving for retirement by expanding and enhancing access to retirement plans.  As it pertains to unclaimed property, the new law is significant in that it changes the so-called “Mandatory Distribution Date” – the age by which an account owner must begin taking distributions from an IRA account.  In most states, one of the triggering events for IRA escheatment is “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.”  Previously, such distributions were required by April of the year in which the account owner reached age 70.5.  Pursuant to the SECURE Act, that threshold has been extended to age 72.  IRA holders should update their procedures accordingly. 

The new rule applies to distributions required to be made after December 31, 2019.

In addition, on January 1, 2020 IRS Revenue Ruling 2018-17 went into effect, generally requiring holders that are reporting and remitting IRA-related property to state unclaimed property funds to report and withhold federal income tax on such assets.  Accordingly, the National Association of Unclaimed Property Administrators has issued guidance detailing precisely how such assets should be reported, and how the impact of any withholding should be reflected, when unclaimed property reports are submitted to the state.