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June 25, 2020

Guidance and Relief for 2020 RMD Waiver and Required Beginning Date Changes

Group Discussing Required Minimum Distributions.

The IRS has issued guidance and temporary relief relating to required minimum distribution (RMD) changes in 2020. Distributions that would have been RMDs under old law are treated as eligible rollover distributions. The 60-day rollover period deadline for any 2020 RMDs already taken has been extended to Aug. 31, 2020.

2020 RMD Changes under CARES and SECURE Acts

The new guidance addresses issues for RMDs arising from unexpected changes in the rules. The first change was Act Sec. 114 of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), passed at the end of 2019. The SECURE Act changed the required beginning date for RMDs for individuals turning age 70 1/2 in 2020. The second change was the 2020 RMD waiver under Act Sec. 2203 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act in March 2020.

Plans, administrators, and individuals were taken by surprise. Some plans and participants treated distributions as RMDs even though they were not under new rules then in effect. The SECURE Act provided no relief. However, the CARES Act allowed plans and participants to treat would-be RMDs as eligible rollover distributions. Still, under the rules, individuals have 60 days to recontribute distributions and can only do that once in a 12-month period. That left individuals who took early distributions twisting in the wind, not to mention people taking monthly RMD installments.

60-Day Period Deadline Extended

Under the new relief, any distribution already taken in 2020 that would have been an RMD under the old rules has a 60-day recontribution deadline of no earlier than August 31. For example, if someone took a distribution in January 2020 that would have been an RMD under the old rules (either sets of old rules), they have until August 31 to recontribute it to an eligible plan or 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 2020 RMD waiver under the CARES Act or change in the required beginning date under the SECURE Act, the recipient may repay the distribution to the distributing IRA, even if the repayment is made more than 60 days after the distribution, provided the repayment is made no later than Aug. 31, 2020. The repayment will be treated as a rollover, but will be subject to the one rollover per 12-month period limitation or the restriction on rollovers for nonspousal beneficiaries.

SECURE Act Relief

Distributions that were intended as RMDs but in fact are not because of the SECURE Act change in required beginning date are treated as eligible rollover distributions. Note RMDs do not have to satisfy rules regarding mandatory withholding, the option of a direct rollover, and notice of that right. Under this relief, individuals and plans can still treat these as eligible rollover distributions.

2020 Waiver Guidance

The IRS clarified the CARES Act relief. The relief applies for 2020 distributions that would have been RMDs, had it not been for the 2020 RMD waiver. These include distributions to a plan participant paid in 2020 (or paid in 2021 for the 2020 calendar year in the case of an employee who has a required beginning date of April 1, 2021) if the payments equal the amounts that would have been RMDs in 2020 (or for 2020), had it not been for 2020 RMD waiver. They also include distributions that are one or more payments (that include the 2020 RMDs) in a series of substantially equal periodic payments made at least annually and expected to last for the life (or life expectancy) of the participant, the joint lives (or joint life expectancies) of the participant and the participant’s designated beneficiary, or for a period of at least 10 years.

For a plan participant with a required beginning date of April 1, 2021, distributions that are paid in 2021 that would have been an RMD for 2021 had it not been for the CARES Act are treated as eligible rollover distributions. Note, however, that a plan participant with a required beginning date of April 1, 2021, must still receive RMD for the 2021 calendar year by Dec. 31, 2021. If the employee receives a distribution during 2021, that distribution is an RMD for the 2021 calendar year to the extent the total RMD for 2021 has not been satisfied even if the distribution is made on or before April 1, 2021, and accordingly, is not an eligible rollover distribution. However, to the extent the RMD for 2021 has been satisfied, subsequent amounts distributed in 2021 that would otherwise not be eligible rollover distributions pursuant to may be rolled over.

Extended Deadlines Due to 2020 Waiver

Electing five-year rule or the life expectancy rule. If a plan permits an employee or beneficiary to elect whether the five-year rule or the life expectancy rule applies in determining RMDs, then the deadline for making that election typically would be the end of calendar year following the calendar year of the employee’s death. For example, if a 50-year-old employee in a plan providing the election died in 2019 with his sister as his designated beneficiary, the plan provision would require the election by the end of 2020. However, that type of plan may be amended to permit the extension of the election deadline to the end of 2021.

Direct rollover to a nonspouse designated beneficiary. The RMD waiver extends the time for making a direct rollover for a nonspouse designated beneficiary if the participant died in 2019. A special rule provides that if the five-year rule applies to a benefit under a plan, the nonspouse designated beneficiary may determine the amount that is not eligible for rollover because it is an RMD using the life expectancy rule in the case of a distribution made prior to the end of the year following the year of death. This special rule is modified so that if the employee’s death occurred in 2019, the nonspouse designated beneficiary has until the end of 2021 to make the direct rollover and use the life expectancy rule.

Plan Amendments

The guidance provides a sample plan amendment for defined contribution plans that plan sponsors may adopt to implement waiver rules. Any plan amendment must be adopted no later than the last day of the first plan year beginning on or after Jan. 1, 2022 (Jan. 1, 2024, for governmental plans), and must reflect the operation of the plan beginning with the effective date of the plan amendment. The timely adoption of the amendment must be evidenced by a written document that is signed and dated by the employer (including an adopting employer of a pre-approved plan). IRAs do not need to be amended.


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