Navigating RMD Waivers under the CARES Act

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) suspended required minimum distributions (RMDs) from certain retirement accounts for 2020. This waiver applies to any retirement account subject to RMDs, including 401(k)s, 403(b)s, 457(b)s, traditional IRAs, and IRA-based plans such as SEPs, SARSEPs, and SIMPLE IRAs.

Here are some of the rules you need to know regarding RMD waivers under the CARES Act:

2019 RMDs:  An individual taking his or her first RMD in 2019 had the option of taking it in 2019 or by April 1, 2020. The RMD waiver applies only to RMDs taken in 2020, so only those who took their first RMD after December 31, 2019, may waive their 2020 RMD.

Rollover Eligibility:  RMDs are not usually eligible for rollover, but because of the CARES Act waiver for 2020, distributions that would have normally been 2020 RMDs can be rolled over. Rollovers must be completed within 60 days of receipt. However, if the rollover was required to be completed on or after April 1, 2020, the 60-day rollover rule has been extended until July 15, 2020 for RMDs taken between Feb. 1 and May 15, 2020. In addition, if the distribution is from an IRA, it is subject to the once-annually rollover rule. Inherited account RMDs are not eligible for a rollover unless the beneficiary is a surviving spouse.

Automatic RMDs:  Many people receive automatic monthly RMDs, and these participants would have received some distributions before the CARES Act went into effect at the end of March 2020.  Under these circumstances, individuals may elect to stop distributions for the rest of this year and roll over one of their 2020 distributions by July 15 (per the once-annual rollover rule), since those distributions are not considered RMDs under the CARES Act.

Extension of 5-Year Rule for Inherited IRAs: The 5-year rule gives non-spousal beneficiaries a time limit on when they may withdraw funds without tax. The CARES Act extends that time by one year, to six years if 2020 falls within that 5-year timeframe. For example, if the IRA owner died in 2015, the account must be distributed in total by December 31, 2021, an extension of one year from what would have been a deadline of December 31, 2020.

Having a team like Hall Benefits Law on your side means having an ERISA attorney you can call directly for clarification on newly enacted rules and regulations. Call us today at 678-439-6236.

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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.
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