New IRS guidance on CARES Act waiver of 2020 required minimum distributions includes rollover deadline extension

The Coronavirus Aid, Relief, and Economic Security (CARES) Act waives defined contribution tax-qualified retirement plan and IRA (including inherited IRAs) required minimum distributions (RMDs) for 2020, including 2019 RMDs for individuals with an April 1, 2020, RMD “required beginning date.” As the CARES Act was enacted near the end of March 2020, many individuals had already taken their 2020 RMD when the waiver went into effect.

In the recently issued Notice 2020-51, the IRS provides guidance on numerous technical aspects of the 2020 RMD waiver, as well as favorably addresses an oddity in treatment for individuals who took their 2020 RMD in January 2020.

Although RMDs generally cannot be rolled over, 2020 RMDs are treated as voluntary distributions, rather than as RMDs, such that they are eligible for rollover treatment. Rollovers, however, must generally be made within 60 days of distribution, and IRAs are generally subject to a “one rollover per 12 months” limitation. Earlier this year, the IRS extended the 60-day rollover requirement to July 15, 2020, for a 2020 RMD taken as early as Feb. 1, 2020. The odd result was that only individuals who had taken 2020 RMDs in January 2020 were not eligible for non-taxable rollover treatment for their January 2020 RMD distributions.

In Notice 2020-51, the IRS has extended the 60-day rollover deadline for 2020 RMDs to Aug. 31, 2020, including RMDs taken in January 2020. In addition, the “one rollover per 12 months” limitation for IRAs is waived for this purpose, as is the general restriction on rollovers by non-spouse IRA beneficiaries. Further, the rollover opportunity will be applicable to a 2020 distribution that is part of “a series of substantially equal periodic payments” for purposes of the exception to the IRC Section 72(t) additional 10% tax on early distributions. Consequently, an IRA owner or beneficiary who received an IRA distribution in 2020, even if in January 2020, will have until Aug. 31, 2020, to return the amount of the distribution to the IRA for treatment as a non-taxable rollover.

Notice 2020-51 also provides helpful questions and answers, as well as a sample plan amendment for use by sponsors of tax-qualified defined contribution retirement plans to give participants the choice of whether or not to receive a 2020 RMD. Among the highlights of the Q&As:

• No IRA amendments are required in order to utilize the 2020 RMD waiver.
• The 2020 RMD waiver does not change an individual’s RMD “required beginning date.”
• The IRA 2020 RMD repayment opportunity with rollover treatment is available to both IRA owners and beneficiaries of inherited IRAs.
• A 2020 RMD is also waived for an individual whose “required beginning date” is April 1, 2021.
• Distributions from a plan may be rolled back into the same plan

What does CohnReznick think?

To the relief of many, the pre-Notice 2020-51 anomalous treatment of individuals who took their 2020 RMDs in January 2020 has now been favorably addressed. Further, the extension of the rollover deadline for all to Aug. 31, 2020, is a welcome change. It is important to keep in mind that the RMD waiver applies solely to 2020 RMDs. The 2020 RMD waiver rules should not be confused with the Setting Every Community Up for Retirement Enhancement (SECURE) Act change to the RMD “required beginning date” for individuals who attain age 70 1/2 after Dec. 31, 2019, from the April 1 next following the individual’s attainment of age 70 1/2, to the April 1 next following the individual’s attainment of age 72.

Contact
Dana Fried, JD, LLM, Managing Director, National Tax Services
516.417.5064