The IRS released Notice 2020-51 on June 23, 2020 providing additional guidance on the waiver of 2020 required minimum distributions (RMDs) from certain retirement plans.
The CARES Act provided that RMDs for the year 2020 were waived from IRAs and certain defined contribution plans due to impacts of the coronavirus. The SECURE Act increased the age at which RMDs must start to age 72 from 70 ½. It also delayed the commencement of RMDs for certain individuals who work beyond age 72.
The new guidance in Notice 2020-51 provides additional details on the relief of the CARES Act and brings about planning considerations for taxpayers who have already taken 2020 RMDs or plan to do so.
Highlights of New Guidance
Individuals have until August 31, 2020, to repay or roll over RMDs taken in 2020 that are no longer required under the CARES Act waiver.Amounts repaid to the same IRA will not be treated as a rollover for purposes of the rule restricting owners to one rollover in a 12-month period.The normal 60-day limitation on rollovers will not apply to RMDs received in 2020 and rolled over by August 31, 2020.
The relief is provided for amounts that would have been RMDs in 2020.Amounts that are part of a series of periodic payments made annually over 10 or more years or the individual’s life expectancy received in 2020 may also be rolled over.
Non-spouse beneficiaries of inherited IRAs who took RMDs in 2020 are also eligible to repay the amount to the same IRA by August 31, 2020.
Individuals who reached age 70 ½ in 2019 and deferred an initial 2019 RMD to 2020 are eligible for relief on such distributions that were deferred and taken in 2020.
Relief is also provided for an individual whose first RMD year is in 2020 with a required beginning date of April 1, 2021. Any distributions taken in 2021 will be considered to be for a 2021 RMD even if taken prior to April 1, 2021.
Taxpayer Considerations
Individuals who have taken RMDs for 2020 should consider repaying the amount to the same IRA or rolling over funds to another qualified retirement plan.
Individuals who have not taken RMDs for 2020 should consider forgoing distributions for the year if the funds are not needed.
If tax was withheld on an RMD an individual plans to waive, the repayment amount will include the amount withheld. Taxpayers should check with the institution to see if a reversal of withholding is possible, or if not, consider adjusting withholding or estimated payments for the remainder of the year.
Taxpayers should weigh the potential benefit of 2020 Roth conversions given the relatively low current income tax rates and the impact waiving RMDs will have on adjusted gross income.
Author: Justin Lynch | [email protected]
Private Client Services
