IRS Provides More Retirement Plan and IRA Relief

Ruder Ware
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Yesterday, the IRS issued additional guidance regarding two hot topics over the last six months: the waiver of the 2020 required minimum distributions (RMDs) from retirement plans and IRAs, and the change in the required beginning date for RMDs from age 70 ½ to age 72.

Extension and Expansion of 60-Day Rollover for 2020 RMDs

In our blog posts earlier this year, The Early Bird RMD Doesn’t Get the Tax Relief Worm and IRS extends 60-Day Rollover Deadline, we advised that the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) waives most RMDs for 2020 and, if you took your RMD on or after February 1, 2020, the 60-day rollover deadline was extended until July 15, 2020.  We noted that this extension was not helpful if you took your RMD before February 1, 2020.

The new guidance applies to a retirement plan or IRA distribution if the amount is equal to the amount that would have been the RMD in 2020 but for the waiver.  In other words, the new guidance is applicable to 2020 RMDs taken this year, before and after February 1, 2020.  The 60-day rollover deadline for these distributions is extended until August 31, 2020.

The new guidance also allows you to roll over the distribution if you already did a tax-free rollover within the 12 months prior to the distribution, and if you took the distribution from an inherited plan, regardless of whether you are the surviving spouse of the deceased owner.

Note that the requirement that the rollover must be in the same form as the distribution still applies. In other words, if you took a cash distribution, the rollover must be made in cash. If you already used the cash to purchase an investment, you can’t rollover the investment instead of the cash.

60-Day Rollover Now Available for Certain Distributions

In January, we provided an overview of significant changes in federal laws that impact your retirement assets in our blog post, Call to Action: Review your Estate Plan in Light of the SECURE Act.  One change was in the age at which a person must begin taking distributions from a retirement plan or IRA.  Under the prior law, most people were required to begin taking distributions when they reached age 70 ½.  Under the new law, the age was increased to 72.

The new guidance applies to a retirement plan distribution made in 2020 if the plan participant will attain age 70 ½ in 2020, and the distribution would have been an RMD but for the new law.  It also applies to an IRA distribution made in 2020 to the owner or beneficiary, if the distribution would have been an RMD but for the new law.  The guidance allows the recipient of the distribution to roll over the distribution by August 31, 2020, regardless of whether the recipient already did a tax-free rollover within the 12 months prior to the distribution, or the recipient took the distribution from an inherited plan.  Again, the requirement that the rollover must be in the same form as the distribution still applies.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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