Note: The article was updated to reflect the Internal Revenue Service Notice(s) 2020-50 and 2020-51, which provide additional guidance on coronavirus-related distributions and loans and waiver of 2020 RMDs, including expanding the definition of qualified individuals and extending the rollover period for required minimum distributions (RMDs) taken this year.
Background on the CARES Act
The stimulus bill known as the CARES (Coronavirus Aid, Relief, and Economic Security) Act was signed into law on March 27, 2020. The act is designed to help mitigate the impact that coronavirus (COVID-19) is having on the U.S. economy and includes temporary relief specific to certain types of transactions in IRAs and retirement plans.
The waiver also affects 2019 RMDs for individuals who attained age 70½ in 2019 and deferred their 2019 RMD payment until April 1, 2020. If the individual did not distribute their RMD in 2019, then the waiver applies. A 2020 RMD is also waived for an individual whose “required beginning date” is April 1, 2021.
CRDs must be taken on or after January 1, 2020, and before December 31, 2020. The maximum amount for an individual across all their plans and IRAs is $100,000.
An eligible individual is defined as someone:
Frequently Asked Questions
The following is meant to highlight some of the key changes that impact individual retirement accounts (IRAs) and employer-sponsored retirement plans.
Required Minimum Distributions (RMDs) Waiver
Q: I have automatic payments established for the 2020 RMD. Will the RMD be automatically deferred?
A: No. Investors and/or financial professionals need to direct us to modify or defer an automatic withdrawal plan. We can take the request verbally or in writing.
Q: I already took a 2020 RMD payment from my IRA. Can it be returned?
A: A distribution taken earlier this year to meet an RMD requirement is eligible to be repaid to the distributing IRA by the extended August 31, 2020, deadline. The repayment will not count toward the one rollover per 12-month period limitation for IRAs.
After August 31, 2020, a distribution taken to meet an RMD requirement is only eligible to rollover if it is within the 60-day indirect rollover period and it is the only rollover in a 12-month period.
Investors should work with their financial professional and complete an Indirect Rollover Request.
For inherited IRAs: The restriction on rollovers by non-spouse IRA beneficiaries is waived. Non-spouse IRA beneficiaries are eligible to repay an RMD back into the distributing inherited IRA by August 31, 2020.
Q: I am a beneficiary taking distributions on the 5-year rule, how does the 2020 RMD waiver apply?
A: The 5-year period is determined without regard to calendar year 2020.
Example: A beneficiary of an individual who died in 2018 is following the 5-year rule. The 5-year period ends in 2024 instead of 2023.
Note: These changes do not apply to beneficiaries who will be taking distributions based on the 10-year rule.
Coronavirus-related distributions (CRDs)
Q: I am impacted by COVID-19. Am I eligible to take a coronavirus-related distribution from my IRA?
A: You can take a distribution from an IRA at any time. However, to qualify for the special tax rules for CRDs (up to $100,000), you must be an eligible individual (as defined above) and the distribution must be taken on or after January 1, 2020, and before December 31, 2020.
If you need assistance determining if such a distribution would be penalty-free, refer to your financial professional or tax advisor.
Q: How do I request a CRD from my IRA?
A: To request a distribution, we can take the request verbally or by completing and submitting the IRA Single Distribution Request.
The IRS has provided additional guidance on how to report these distributions on your taxes. Refer to your financial professional or tax advisor for additional information.
Q: If I take a CRD from a SIMPLE IRA during the first two years, is the 25% early distribution penalty waived?
A: Yes, CRDs are not subject to an early distribution penalty. If you need assistance determining if you’re eligible to take a CRD, consult your financial professional or tax advisor.
Q: Can I take a CRD from my CB&T 403(b) or governmental 457(b) account?
A: You must check with your employer that a CRD is a distribution event offered by the plan. If so, complete the 403(b)/457(b) Coronavirus-related Distribution Request and submit it to your employer.
If you are otherwise eligible for a distribution, you can request a distribution under that event and still take advantage of the:
Q: If I later want to repay a CRD back into my IRA or retirement plan, how much time do I have to repay it?
A: Investors have three years beginning on the day after the date the distribution is made. You can repay the amount distributed or a lesser amount to an IRA or qualified plan that accepts rollovers. The repayment is treated as a rollover and does not count toward the one rollover per 12-month period limitation for IRAs. Taxpayers will be able to recover tax previously paid in connection with CRDs that are rolled back into an IRA or plan. The IRS has provided guidance on how to reverse the tax consequences of CRDs that are later rolled back into an IRA or plan. Refer to your financial professional or tax advisor for additional information.
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
This material does not constitute legal or tax advice. Investors should consult with their legal or tax advisors.
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