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Home / Blog / IRS Provides RMD Relief for 2020

IRS Provides RMD Relief for 2020

August 9, 2020 by Mary Wade, CPA, M.S.T.

The $2.2 trillion CARES economic stimulus bill passed in March to provide relief from the COVID-19 pandemic in the United States included a number of provisions related to required minimum distributions (RMDs) from retirement plans. These changes were designed to allow seniors to retain plan assets when they might otherwise have to sell at market lows due to the economic impact of Coronavirus.

Participants in account-based retirement plans are required by law to take RMDs after the plan participant or IRA owner reaches a certain age. The goal is for individuals to use their tax-advantaged retirement assets during their lifetime rather than passing on to their heirs. Distribution amounts for each year are based on a formula that includes the individual’s age and account balance at the end of the prior year.

“Since RMD amounts are calculated based on the value of the account at the end of the previous year, the market fluctuations due to COVID-19 could have had unfavorable consequences for some taxpayers,” says Mary Wade, Senior Manager at Gordon Advisors. “The IRS recognized this and included it in the CARES bill to provide some flexibility for those who can afford not to take distributions.”

Since RMDs out of non-Roth IRA accounts are fully taxable at ordinary rates, retirees who can afford it usually elect to postpone them as long as possible. We’ve addressed common questions relating to the RMD relief provisions, but please contact Gordon Advisors for any additional information related to your specific tax situation. We are here to help.

What types of retirement plans receive RMD relief for 2020?


The waiver under the CARES Act applies to defined contribution plans (401(k), 403(b) or 457(b) plans, for example), tax-sheltered annuity plans, and traditional or Roth IRAs. Defined benefit pension plans are not included.

Who is eligible to receive the RMD waiver?


If you are subject to RMDs, the waiver applies to you. There are no age or income restrictions on who can use the RMD waiver.

What if I’ve already taken an RMD in 2020?


In IRS Notice 2020-51 issued on June 23rd, they extended the deadline for retirement account beneficiaries to rollover or repay the RMD back to the distributing account on or before August 31, 2020

What if I took my 2020 RMD more than 60 days ago?


All RMDs taken between January 1, 2020 until August can be rolled over or re-contributed by the new August 31, 2020 deadline. The full amount of the distribution must be rolled over or re-contributed to avoid taxes.

What if I took multiple RMDs this year?


Typically, you are limited to rolling over or re-contributing one distribution during a rolling 12 month window. This new guidance means that you can take multiple 2020 RMDs and roll over or re-contribute the assets by August 31, 2020.

What if I opted to have federal and/or state taxes withheld from my RMD?


Unfortunately, tax withholdings cannot be reversed. You can, however, make up the difference and rollover or re-contribute an amount equivalent to the taxes withheld. You can then claim that amount when you file your 2020 taxes next year.

What if I turned 70 ½ in 2019 and did not take my first RMD in 2019?


For those individuals who chose to wait until April 1, 2020 and had not yet taken the distribution at the time the CARES legislation was passed, they can waive both the 2019 and the 2020 RMDs.

Does this change my required beginning date?


The new rule does not change an individual’s RMD required beginning date, just waives the RMD for 2020. The RMD for 2020 is also waived for an individual whose required beginning date is April 1, 2021.

Did this law change the age at which RMDs need to be taken?


No, that was a different law passed earlier. The Setting Every Community Up for Retirement Enhancement (SECURE) Act changed the law so that if you turn 70 ½ in 2020 or later, the new age at which RMDs need to be taken is 72.

What if I’m still working when I turn 72?


Participants who continue to work past the year they turn 72 do not need to start RMDs from their current employee plan such as a 401(k) until the year they are no longer an employee. This special exception does not apply to IRAs, plans from prior employers, or if the individual owns more than five percent of the employer.

Does the waiver include inherited IRAs?


Yes. It also includes inherited Roth IRAs.

What about someone who died and whose interest is required to be distributed within five years?


2020 is not included in the five year period. For someone who died in 2017, for example, the five year period ends in 2023 instead of 2022.

Any other notable features of the CARES Act?


Section 2202 of the CARES Act includes a separate provision providing expanded distribution options and favorable tax treatment for up to $100,000 of coronavirus-related distributions from eligible retirement plans. It also increases the amount an individual may borrow from an eligible non-IRA retirement plan, and permits plan sponsors to grant qualified individuals up to an additional year to repay loans from retirement plans.

Who qualifies for this special provision?


According to the IRS, you are qualified if:
• You, your spouse, or dependent are diagnosed with SARS-CoV-2 or COVID-19 by a CDC-approved test.
• You experience adverse financial consequences as a result of being quarantined, being furloughed or laid off, or having work hours reduced due to the pandemic.
• You are unable to work because of lack of child care due to the pandemic.
• A business that you own or operate closes or reduces hours due to the pandemic.

Do I have to pay the 10% additional tax on coronavirus-related distributions?


No, the 10% additional tax that would normally be applied to early distributions does not apply to any coronavirus-related distributions.

When do I pay taxes on coronavirus-related distributions?


Coronavirus-related distributions are included in income over a three year period starting in the year in which your receive the distribution. If you receive a $90,000 coronavirus-related distribution in 2020, you would report $30,000 of income on your federal tax return for 2020, 2021 and 2022. You have the option of include your entire distribution in your income for the year in which you received it.

Please contact Gordon Advisors for answers to any questions not covered here, or for more details related to your specific financial and tax situation. We are here to help.


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