The Coronavirus Aid, Relief, and Economic Security (CARES) Act waived 2020 Minimum Required Distributions (RMD) from both Individual Retirement Accounts (IRAs) and qualified retirement plans, such as 401(k) or 403(b) plans. This change applies to those already taking RMDs, as well as those that turned 70 ½ in 2019 and normally would have been required to take their initial RMD by April 1, 2020. However, the CARES Act was not passed until after many people had already begun taking their RMDs. While normally, individuals have 60 days to roll over a distribution back into their plans, this period had already expired for some by the time the CARES Act was enacted. To help those who have already taken RMDs, the IRS has extended the normal 60-day period until August 31, 2020. This gives those who took RMDs the option of rolling over those funds to the same or a different retirement account and continuing to defer the tax.
Individuals are generally only allowed to make one indirect 60-day rollover from an IRA per 12-month period. Under this notice, repayments of an RMD under the CARES Act will not be treated as indirect rollovers, which means the ability to take a distribution and repay it within 60 days once in a 12-month period will not be affected by a repayment of a waived RMD.
Plan documents of electing qualified retirement plans will need to be amended to allow for the above changes, but IRAs will not require any change to their plan documents. Plan amendments can be implemented immediately, or no later than the end of their 2022 plan year. The IRS has provided sample language that can be used in amending plans, which can be found in IRS Notice 2020-51.
Clients are strongly advised to contact their E. Cohen advisor to learn more about the IRS’ updated guidelines for retirement plan amendments and RMD rollover options.