New 2020 RMD Withdrawal and Redeposit Rules

In March, the Corona Aid, Relief, and Economic Security (CARES) Act was passed to provide relief to individuals, small businesses, medical organizations and government entities. Although the CARES Act is best known for the stimulus check provision and Paycheck Protection Program (PPP) loans, it also included a provision to waive the required minimum distribution (RMD) requirement for 2020.

What plans are covered?

The waiver of the RMD applies to a broad range of retirement accounts, including IRA accounts; SEP and SIMPLE IRAs; defined contribution plan accounts under 401(a), 401(k), 403(a), and 403(b); and governmental 457(b) plans. The waiver also extends to RMD for inherited IRA accounts.

What individuals are affected?

The provision suspends RMD rules for any distribution required during 2020. ┬áThis includes (1) individuals who normally have an RMD in 2020, (2) individuals who turned 70-1/2 in 2019 and waited to take their first RMD in 2020, and (3) older retirees whose first RMD is required in 2020 rather than prior years when they met the “still-working” exception.

How to fix an unwanted RMD

Since the Act was passed in March, some retirees have already taken RMDs for 2020. For some, the RMDs are needed, but others may wish the Act had passed sooner and they would not have taken the distribution. Fortunately, if an RMD was taken but not wanted, there are a number of ways to fix it.

  1. If the RMD was recently withdrawn, it can be returned to the retirement account from which it was withdrawn or rolled into another eligible retirement account within 60 days after funds were received.
  2. Distributions taken on or after February 1, 2020, can be redeposited on or before July 15, 2020.
  3. Impacted individuals can treat the RMD as a Coronavirus-related distribution and have up to 3 years to re-pay the distribution. “Impacted” is defined as either (1) the taxpayer, their spouse, or a dependent must be diagnosed positive for COVID-19, (2) individual experienced a financial hardship due to being laid off or furloughed or being unable to work because of a lack of childcare options, or (3) a business owner required to completely or partially shut down operations during the pandemic.

Non-spousal beneficiaries of inherited retirement accounts are not eligible to do a rollover and thus, once an RMD is taken for 2020, it cannot be returned unless they qualify as Coronavirus related distributions to be returned within 3 years.

IRA account owners are restricted by a once-per-year rollover rule so those who completed a rollover within the past 365 days or received their RMD in installments might not be able to give back their unwanted RMD.

For questions or assistance with your 2020 RMD planning, please contact us.