IRS Offers Guidance on RMDs considering CARES Act and SECURE Act

On June 26, 2020, the IRS issued Notice 2020-51, which provides guidance on the waiver of required minimum distributions (RMDs) for 2020 from certain retirement plans under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) and the required beginning date for RMDs under the Setting Every Community Up for Retirement Enhancement Act (“SECURE Act”).

The SECURE Act extended the age for beginning RMDs to 72 for all those who turned 70 ½ after December 31, 2019. Under the SECURE Act, RMDs from an employer-sponsored retirement plan or IRA must begin on April 1 of the calendar year following the calendar year in which the participant reaches age 72.

The CARES Act suspended RMDs from tax-deferred retirement accounts for 2020. Per Notice 2020-51, the IRS permits individuals that have already taken a 2020 RMD to treat that distribution as an eligible rollover distribution by extending the 60-day rollover period to August 31, 2020.

In addition to the rollover opportunity, an IRA owner or beneficiary who already received a distribution from an IRA that would have been an RMD in 2020 can repay the distribution to the IRA by August 31, 2020. This repayment is also not subject to the one rollover per 12-month period limitation and the restriction on rollovers for inherited IRAs.

Notice 2020-51 also provides two sample amendments that employers may use to give plan participants and beneficiaries whose RMDs are waived a choice of whether to receive the waived distribution. It also provides guidance about other issues related to the relief, including the following:

  • There is no requirement to amend IRAs to provide for the RMD waiver.
  • The deadline for employees or beneficiaries to elect either the five-year-rule or life expectancy rule for calculating RMDs is extended to December 31, 2021.
  • The waiver of 2020 RMDs does not change an individual’s required beginning date.
  • A non-spouse designated beneficiary of an account whose owner died in 2019 has until the end of 2021 to make a direct rollover or use the life expectancy rule in determining RMDs.
  • A plan subject to §§ 401(a)(11) and 417 may choose whether to have a new annuity starting date when distributions restart. Spousal consent is not required If the plan does not provide for a new annuity starting date in most cases. If the plan provides for a new annuity starting date, spousal consent may be required for the suspension of distributions that include 2020 RMDs and the restart of distributions in 2021.
  • Distributions from a plan may be rolled over back into the same plan, provided the plan permits rollovers and the rollover satisfies the requirements of § 402(c).
  • RMDs taken in 2020 are not eligible rollover distributions for purposes of Code Section 3405 and therefore are not subject to Section 3405’s mandatory withholding rules.
  • The RMD waiver does not apply to payments made as part of a series of substantially equal periodic payments. Therefore, stopping these payments in 2020 could result in losing the exemption from the 10% early withdrawal tax.
  • IRA owners must be notified that RMDs are not due in 2020. IRA trustees, issuers, or custodians can meet this requirement by providing a copy of Form 5498 to the IRA owner.
  • The waiver of 2020 RMDs does not apply to a defined benefit plan, even if the defined benefit plan is using the rule to determine the portion of a single sum distribution that is an RMD.

Hall Benefits Law’s vision is to provide every client with the peace of mind that comes from the confidence that HBL has addressed all possible compliance vulnerabilities. To learn more, call our team of responsive, experienced ERISA and employment counsel at 678-439-6236.

The following two tabs change content below.

Hall Benefits Law, LLC

HBL offers employers comprehensive legal guidance on benefits in mergers and acquisitions, Employee Stock Ownership Plans (ESOPs), executive compensation, health and welfare benefits, healthcare reform, and retirement plans. We counsel a wide spectrum of clients including small, mid-sized, and large companies, 401(k) investment advisors, health insurance brokers, accountants, attorneys, and HR consultants, just to name a few. HBL is passionate about advising clients, and we are dedicated to our mission: to provide comprehensive, personalized, and practical ERISA and benefits legal solutions that exceed client expectations.

Latest posts by Hall Benefits Law, LLC (see all)

%d bloggers like this: