On March 27, 2020, the CARES Act was passed and provided several relief provisions for retirement plans. One of the provisions was a waiver for Required Minimum Distributions (RMDs) for retirement plan participants and IRA account holders over the age of 70-1/2 (age 72 for those turning 72 in 2020). Retirement plans subject to the waiver are defined contribution retirement plans, including 401(k), profit sharing, money purchase pension plans, 403(b), and 457(b) plans (there was no waiver for RMDs from Defined Benefit or Cash Balance Pension Plans).
With the waiver, participants who had already received their RMD for 2020 had the option of returning their payment to an IRA or retirement plan as a tax-free rollover contribution. Because there is a 60-day time limit for performing a rollover, however, individuals who received their payment in January were too late because the 60-day limit had passed from the time they received their payment to the date that they could take advantage of the CARES Act waiver.
IRS Notice 2020-51 provides welcome relief for these individuals and allows an extension of the 60 day rollover period up to August 31, 2020. If an individual received their RMD payment in January and was previously too late to perform their rollover within 60 days, they may now make a rollover contribution until August 31, 2020 to avoid taxation on the payment amount.
Notice 2020-51 also provides some additional guidance as follows:
- Although plan participants may perform a rollover with their payment, plan sponsors who have processed RMDs are not required to (and should not) treat the payment as an eligible rollover distribution which has different tax withholding requirements compared to an RMD (20% federal tax withholding for payments eligible for rollover versus optional 10% withholding for an RMD).
- The special RMD rollover treatment is also available for payments that are normally part of a series of substantially equal periodic payments. These payments, however, are subject to complex rules that can trigger a recapture tax for some individuals if the payment is not made according to the periodic schedule.
- RMD payments may be repaid to the same plan that issued the benefit payment, however, the plan must allow for rollover contributions. If the plan does not allow for rollover contributions the payment may be rolled into an IRA.
- Individuals who turn Age 72 in 2020 would normally have a required beginning date for their RMD as of April 1, 2021. These payments are also waived and the 2021 RMD payment will still be due by December 31, 2021.
- This notice provides a sample plan amendment to assist service providers and plan sponsors with the required amendment (which must be adopted no later than the last day of the plan year beginning in 2022). The IRS also clarifies that any amendment for the RMD waiver may not remove an existing optional form of benefit under the plan. The amendment language provides participants and beneficiaries the option of receiving or not receiving the payment in 2020.
Aldrich is Here to Help
As always, your Aldrich Retirement Solutions team is here to provide support for you however we can during these rapidly changing times. If you have questions about IRS Notice 2020-51 or other retirement plan issues, please contact your Aldrich Advisor or David Strom. For more employer resources to help you navigate the developing impact of coronavirus on your business, visit our COVID-19 Resource Center.
This article is a summary of IRS Notice 2020-51 and is provided as a service to our clients and friends. It should not be relied upon for tax advice.