The Internal Revenue Service released Notice 2020-51, Guidance on Waiver of 2020 Required Minimum Distributions, pertaining to the waiver of 2020 required minimum distributions as described in Section 401(a)(9) of the Internal Revenue Code of 1986, as amended (the “Code”) for certain retirement plans under Section 2203 of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).
In effect, Notice 2020-51 provides certain taxpayers that took a 2020 distribution that, but for the CARES Act, would have been a required minimum distribution with paths to put it back into a retirement account so the participant does not have to include such amount in their income and pay income tax on it. Therefore, participants that complied with the required minimum distribution rules early in the year, before the enactment of the CARES Act which eliminated required minimum distributions in 2020, are not punished for having done so.
Required Minimum Distributions
Pursuant to Section 401(a)(9) of the Code, stock bonus, pension, and profit-sharing plans are required to make minimum distributions starting by the required beginning date. Individual retirement accounts and individual retirement annuities described in Section 408(a) and Section 408(b) of the Code, Section 403(b) plans, and eligible deferred compensation plans under Section 467(b) of the Code are also subject to the rules of Section 401(a)(9) of the Code and are required to make minimum distributions.
An eligible distribution that is rolled over to an eligible retirement plan no later than the 60th day following the day of receipt is generally not includible in gross income. A required minimum distribution is generally not an eligible rollover distribution. Notice 2020-51 provides guidance to certain taxpayers that took what they thought were required minimum distributions, but due to the CARES Act are now not required minimum distributions, on how to put the distribution back into a retirement account.
The CARES Act and Notice 2020-51
The CARES Act added Section 401(a)(9)(I) to the Code, which provides for a temporary waiver of required minimum distributions for defined contribution plans and individual retirement accounts (“IRA”) for 2020. The waiver also applies to a 2019 required minimum distribution for an individual who has a required beginning date of April 1, 2020 that was not paid in 2019 and therefore would have been due to be paid between January 1, 2020 and April 1, 2020. The items discussed below are provided for in Notice 2020-51:
- Notice 2020-51 allows taxpayers that receive a distribution from an IRA to put the distribution back tax-free into the account from which it came by August 31, 2020. Even beneficiaries of inherited IRAs, who otherwise would be prohibited from a roll over pursuant to Section 408(d)(3)(C) of the Code, are allowed to repay inherited required minimum distributions back into the plan from which they came until August 31, 2020.
- Notice 2020-51 allows taxpayers to exclude repayments to an IRA of amounts in 2020 that, but for the CARES Act would have been required minimum distributions from the IRA, from counting as a rollover for purposes of the rule in Section 408(d)(3)(E) that only one IRA distribution may be rolled over per 12-month period.
- Notice 2020-51 extends the 60-day rollover period for an otherwise eligible rollover distribution to the later of 60-days from the date of receipt or until August 31, 2020. Note that this does not apply to non-spouse beneficiaries.
- A retirement plan may operate in accordance with an expected plan amendment relating to the changes prescribed by Section 2203 of the CARES Act, provided the plan is actually amended no later than the last day of the first plan year beginning in 2022.
If you took a required minimum distribution between January 1, 2020 and March 27, 2020, reach out to your Nutter attorney to discuss if it would be beneficial for you to take advantage of the procedures provided for in Notice 2020-51.
This advisory was prepared by Natalie Choate, and Laura Marsell of Nutter’s Tax Department. If you would like additional information, please contact Natalie or Laura, or your Nutter attorney at 617.439.2000.
This update is for information purposes only and should not be construed as legal advice on any specific facts or circumstances. Under the rules of the Supreme Judicial Court of Massachusetts, this material may be considered as advertising.