No RMDs in 2020

The 880-page Coronavirus Aid, Relief, and Economic Security (CARES) Act signed by the President on March 27, 2020, includes a number of measures designed to stimulate the economy. One provision allows retirees to forgo taking Required Minimum Distributions (RMDs) from IRAs or 401(k)-type plans for calendar year 2020. This isn’t the first time that they have waived RMDs. As you may recall, after the last stock market crash, they waived RMDs for tax year 2009. Since the virus has caused another steep decline in the stock market, they felt it appropriate to waive the RMDs for 2020 so that retirees keep the money in their accounts, potentially recouping some of the market losses when the economy turns around.

Here are some answers to some frequent questions about the RMD rules contained in the CARES Act.

1. Do retirees have to take RMDs from retirement accounts in 2020?

The answer is “No.” All RMDs have been suspended for 2020. This waiver includes any retirement account subject to RMDs, such as IRAs, 401(k)s, Roth 401(k)s and inherited accounts.

2. What age do I have to be in order to qualify for the waiver?

If you are subject to RMDs, the waiver applies to you regardless of age. It includes original account owners over age 70½ (or 72, under the SECURE Act), original account owners who turned 70½ in 2019 but have not taken their distribution yet, and beneficiaries of inherited-IRAs regardless of their age.

3. Does the waiver apply to inherited IRAs?

Yes. The waiver extends to inherited IRAs.  It even appears that inherited IRAs with non-spousal beneficiaries, which would normally need to be liquidated within 5 years of the original account-holder’s death, are not required to take a distribution in 2020. Hopefully, the IRS will issue guidance on this last point as there is some lack of clarity as to how the law applied to the 5-year rule as well as the new 10-year rule under the SECURE Act.

4. What if I already took an RMD in 2020?

Since the CURES Act wasn’t enacted until March 27, 2020, some taxpayers had already taken their 2020 RMD. Well, there is good news!! On June 23, 2020, the IRS issued broader relief for those who have already taken their RMD for 2020. For those who took a now unwanted RMD distribution, the deadline for reversing the distribution is August 31, 2020 (or 60-days from the date of distribution, if later). To explain this relief, consider the following example. Let’s say you thought you had an RMD of $20,000 for 2020 and you took it out on February 15, 2020. Under normal rules, you would have 60 days from February 15, 2020, to put that $20,000 distribution back into an IRA. If you did, it would count as a “rollover” and the amount wouldn’t be taxable. However, the IRS has said that the 60-day period doesn’t apply, but rather you have until August 31, 2020 to repay the distribution (and it does not count as a “rollover” for purposes of the rule that limits you to one rollover in any 12-month period.) In addition, this relief also applies to those who are taking distributions from inherited IRAs. Therefore, they can also redeposit unwanted 2020 distributions before August 31, 2020, even though you cannot normally rollover distributions from inherited IRAs. Those who haven’t taken a 2020 RMD, but have them set up to be taken automatically later in the year, now is a good time to call your advisor or service provider to suspend the RMD for 2020.

More details from the IRS.

If you want the gory details on these changes, you can read IRS Notice 2020-51 (PDF).