Required Minimum Distributions Are Waived In 2020
Section 2203 of the CARES Act amends IRC Section 401(a)(9) to suspend required minimum distributions (RMDs) during 2020. The relief provided by this provision is broad, and applies to Traditional IRAs, SEP IRAs, and SIMPLE IRAs, as well as 401(k), 403(b) and Governmental 457(b) plans. Furthermore, the relief applies to both retirement account owners, themselves, as well as to beneficiaries taking stretch distributions.
In one somewhat surprising twist, the CARES Act not only eliminates RMDs for 2020, but any RMD that otherwise needed to be taken in 2020. More specifically, individuals who turned 70 ½ in 2019, but did not take their first RMD in 2019 (and thus, would have normally been required to take such a distribution by April 1st, 2020, as well as a second RMD for 2020 by the end of 2020) do not have to take either their 2019 RMD or their 2020 RMD! Thus, these procrastinators get to escape two RMDs instead of just one!
Returning Unwanted 2020 RMDS That Have Already Been Distributed
Despite the fact that we’re not quite yet through the first quarter of the year, a number of individuals have already taken their RMD – or at least, what they thought was their RMD at the time – for 2020. Now, in light of the CARES Act, these individuals may wish to ‘return’ unwanted and no longer necessary ‘RMDs’.
For IRA, 401(k), and other retirement account owners, this may be possible two different ways. In a best-case scenario, the ‘RMD’ distribution will have taken place within the last 60 days, and the distribution won’t be prevented from being rolled over due to the once-per-year rollover rule (either because it came from a plan, is going to a plan, or because no IRA-to-IRA rollover has been made within the past 365 days). In such instances, an individual can simply write a check, or otherwise transfer an amount equal to the ‘RMD’ back into a retirement account before the end of the 60-day rollover window.
For retirement accounts owners who took their RMD very early in the year, and for whom the 60-day rollover window has already expired, there is another potential approach. If it can be shown that the individual has been impacted by the COVID-19 crisis enough to qualify under the liberal guidelines outlined earlier for a Coronavirus-Related Distribution, then the rollover can still be completed… anytime for the next three years (from the date the distribution was received)!
Notably, while most benefits in the CARES Act are only available for actions occurring either after the President declared a national emergency, or in other cases, the enactment of the law, the Coronavirus-Related Distribution provision can apply to distributions as early as January 1, 2020!
But what about beneficiaries who took RMDs already? Is there any relief for them? Unfortunately, the answer is no. A beneficiary is not eligible to make a rollover. Period. As such, even if the distributed ‘RMD’ was made within the last 60 days, there is no way to get it back into the inherited retirement account.
Note: The lone exception for beneficiaries would be for a spouse who chose to remain a beneficiary of the deceased spouse’s retirement account. In such an instance, they may be eligible to put the ‘RMD’ back into their own retirement account, as a spousal rollover, using one of the methods described above.
Robert G. Carpenter
Baltimore-Washington Financial Advisors
5950 Symphony Woods Road, Suite 600
Columbia, MD 21044
Toll Free: 888-461-3900