Will RMD Age Increases Cause ‘Abandoned’ Property Problems?

SECURE 2.0 increased the RMD age to 73 and will increase it again to 75 in 2033. Some states’ laws could cause IRAs to be unfairly seized by state governments.

The SECURE 2.0 Act of 2022, passed in December 2022, increased the required minimum distribution age for withdrawals from individual retirement accounts to 73 this year. In 2033, the RMD age will increase to 75, per the same section of the law. However, due to the escheatment, or unclaimed property, laws in certain states, some IRAs could be considered abandoned if they are left untouched until age 75.

In Kentucky, Maine, Colorado and Nevada, individual retirement accounts are considered abandoned if they are unclaimed three years after the participant turns age 70.5, which was the RMD age prior to the first SECURE Act, passed in 2019. After 2033, therefore, if participants wait until age 75 before taking the RMD, their IRAs could be considered abandoned when they hit age 73.5, absent any legislative change from their respective states.

IRAs, unlike employer-sponsored retirement plans, are subject to an RMD even if the participant is still working.

Michael Giovannini, a partner at the Alston & Bird law firm, explains that IRAs must be escheated to the state government if they are unclaimed within the time period established in state law. The owners, or their beneficiaries, can still claim that property at any point in the future, but many people do not know they can claim it or how to do so. As one example, Kentucky’s treasury department says its unclaimed property fund has a value of nearly $800 million.

State-by-state information on unclaimed property, maintained by the National Association of State Treasurers, is available here.

Giovannini says this is only an issue for IRAs, since ERISA pre-empts state laws for employer-sponsored plans, which are therefore not escheatable to state governments.

Many states have set their abandonment age for IRAs to a specific age, rather than tying it to the IRS’ RMD age, Giovannini explains. Other states, such as Illinois, Washington, Vermont and North Dakota, have laws which also say that an IRA is considered abandoned after three years, but those states start the clock at age 72, instead of 70.5. This could still create a problem if there is a delay in collection after age 75 or if the RMD age is increased again. Giovannini recommends that states simply tie their escheatment laws to the federal RMD age, so it need not be changed.

When IRA funds are escheated, they are typically liquidated and taxed before being transferred to the state treasury. This means they will also cease accruing any interest, as assets do while still in an IRA. States also often set aside an estimate of unclaimed property in their budgeting, knowing that some unclaimed property will remain unclaimed indefinitely, according to Giovannini. He adds that, “Some states are better at returning property than others.”