Prior to the enactment of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, many taxpayers meeting the specified age criteria were mandated to take annual taxable distributions from their retirement plans, such as Individual Retirement Arrangements (IRAs), Section 401(k) plans, Section 403(b) plans, etc. (See related post)
However, an important provision of the CARES Act allows qualified retirees to defer their annual required minimum distributions (RMDs) in 2020 due to the pandemic. (See IRS Notice 2020-50)
Essentially, if retirees can afford to forgo their annual RMD, this provision allows for an additional year to recoup economic losses in the account that might result from the pandemic in 2020. Obviously, there is also the opportunity to keep higher amounts invested, including any income taxes that would have been due in 2020 on the distributed amounts.
As the CARES Act was not enacted until March 27, 2020, the question arises as to how to deal with taxpayers that had already taken their RMDs for 2020 before the provision was added to the tax law. In effect, the amounts withdrawn from retirement accounts prior to enactment of the law are able to be rolled over into a qualifying retirement account. However, tax-free rollover status generally requires such rollovers to occur within 60 days of distribution.
The Internal Revenue Service recently released Notice 2020-51, which provides guidance relating to the waiver in 2020 of RMDs from certain retirement plans and IRAs due to the amendment made under the CARES Act, as well as an extension of the 60-day rollover relief period to August 31, 2020, with respect to waived RMDs from qualified retirement plans. Under the new guidance, RMDs taken from January through June 2020, qualify for the rollover extension until August 31, 2020.
In addition to this relaxation of the historical rules, the one-rollover-every-12-months requirement for IRA owners who took RMD monthly installments in 2020 has also been waived. Owners of inherited IRAs and other inherited plans also qualify for the waiver. The Notice also provides questions and answers regarding the waiver of 2020 RMDs and a sample plan amendment.
More information about Coronavirus-Related Relief for Retirement Plans and IRAs can be found on the IRS website. Please contact to Bob Grossman or Don Johnston at 412-338-9300 if you have any questions or need assistance.