The IRS has issued new guidance on the Coronavirus Aid, Relief, & Economic Security (CARES) Act waiver of required minimum distributions (RMDs) from certain retirement accounts. In addition, the IRS offered guidance on rollover and transition relief for certain distributions in 2020 that would have been RMDs if the age used to define a participant’s required beginning date had not been increased from 70.5 to 72 years of age by the Setting Every Community Up for Retirement Enhancement (SECURE) Act. Here is a summary of the guidelines:
- CARES Act Rollover Guidance. The notice allows distributions paid in 2020 (or in 2021 for the 2020 calendar year in the case of a required beginning date of April 1, 2021) to be rolled into an eligible retirement plan if they are (a) equal to the amount that would have been RMDs in (or for 2020) absent the waiver, or (b) payments (includes 2020 RMDs) in a series of equal periodic payments made at least annually and expected to last for the participant’s life or life expectancy, the joint life or life expectancies of the participant and a designated beneficiary, or a period of at least ten years. In addition, for plan participants with a required beginning date of April 1, 2021, distributions paid in 2021 that would have been RMDs for 2021 may be rolled over to the extent an earlier distribution in 2021 has satisfied the 2021 RMD obligation.
- SECURE Act Transition Guidance. Plan administrators are not required to treat a distribution made in 2020 to a participant attaining age 70-1/2 in 2020 as an eligible rollover distribution for purposes of certain Code requirements relating to direct rollovers, notices, and tax withholding. Consequently, if a plan improperly characterizes such a distribution as an RMD, the plan will not be considered to have failed to meet those requirements.
- Extension of 60-Day Deadline for Rollover of Certain Distributions. The notice extends the 60-day rollover period for the payments described in the above paragraphs so that the deadline for rolling over such a payment will not be before August 31, 2020.
- Permitted Repayments of RMDs Previously Distributed from an IRA. In the case of an IRA owner or beneficiary who has already received a distribution of an amount that would have been an RMD in 2020 but for the CARES Act or the SECURE Act, the recipient may repay the distribution to the distributing IRA, even if the repayment is after the 60-day rollover deadline, provided the repayment is made no later than August 31, 2020. Any repayment will be treated as a rollover for purposes of excluding the RMD from income, but will not be counted as a rollover for purposes of the one rollover per 12-month period limitation or the restriction on rollovers of non-spousal beneficiaries.
- Other Issues. Question-and-answer guidance in the notice addresses a number of issues relating to the RMD waiver, including the deadline for electing whether RMDs will be determined under the five-year rule or the life expectancy rule, the deadline for a nonspouse designated beneficiary to make a direct rollover, whether the waiver affects an individual’s required beginning date, and how the waiver affects employees with a required beginning date of April 1, 2021. The Q/As also note deadlines that are not affected by this guidance, explain when spousal consent may be needed, and confirm that distributions may be rolled back into the same plan if the plan so permits and other applicable requirements are met.
- Sample Plan Amendment. The appendix provides a sample plan amendment for defined contribution plans—structured as an amendment to a basic plan document and an adoption agreement—that allows the employer to specify the effective date for allowing participants to choose whether to receive 2020 RMDs, whether participants or beneficiaries who do not make an election will or will not receive 2020 RMDs, and which distributions will be treated as eligible rollover distributions in 2020 for purposes of the plan’s direct rollover provisions. Plans that do not use this two-part format can modify the sample as needed. The sample plan amendment has no impact on other distribution provisions.
For information about all the guidelines, here is the link to IRS Notice 2020-51.