Updated: 2020 RMD Withdrawal and Redeposit Rules

Posted July 2020

New, more lenient provisions have been passed.  This article is an update to news we posted in May 2020.

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.  This 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.

The 60-day rollover period for any RMDs already taken in 2020 has been extended to August 31, 2020, to give taxpayers time to take advantage of this opportunity. The IRS described this change in Notice 2020-51, released June 23, 2020.

An IRA owner or beneficiary who has already received a distribution from an IRA of an amount that would have been an RMD in 2020 can repay the distribution to the IRA by August 31, 2020. The notice provides that this repayment is not subject to the once-per-year rollover rule or the restriction on rollovers for inherited IRAs.

The notice provides two sample amendments that employers may adopt to give plan participants and beneficiaries whose RMDs are waived a choice as to whether or not to receive the waived RMD.

Alternatively, 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.

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