The Internal Revenue Service (2020) has issued a reminder to taxpayers that they are not required to take money out of their individual retirement accounts (IRAs) and retirement plans this year.
Here’s the scoop. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which was passed in response to the COVID-19 pandemic, offers several opportunities to get tax-favored loans and free money, push off tax deadlines and take advantage of expanded tax breaks. A number of those tax breaks are targeted to taxpayers with retirement accounts.
You are typically required by law to take withdrawals from your IRA, SIMPLE IRA, SEP IRA or retirement plan such as a 401(k) once you reach the age of 72. But the Cares Act waives required minimum distribution (RMD) payments for 2020, including for inherited IRAs.
The CARES waiver includes RMDs for individuals who turned age 70 ½ in 2019 and took their first RMD in 2020. If that seems like an odd add – and a conflict – remember that the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), which became law on December 20, 2019, also made significant changes to the RMD rules. It changed the age requirements to require withdrawal if you reached age 70 ½ in 2020 or later: in that case, you must take your first RMD by April 1 of the year after you reach 72. But, if you reached the age of 70½ in 2019, the old rules applied, and you were supposed to take your first RMD by April 1, 2020.
Supposed to. Then, enter the CARES Act, which pushes it off even more due to the waiver. So, now, a la Oprah, “You get a waiver! And you get a waiver! And you get a waiver!”
The only waiver-less folks, really, are those with Roth IRAs. But that doesn’t matter since Roth IRAs do not require withdrawals until after the owner’s death.
But what if you’ve already taken your RMD?
If you have already taken your RMD in 2020, you can choose to return it or roll it over:
- If you have already received an RMD in 2020, you can repay the distribution to the distributing IRA no later than August 31, 2020, to avoid paying taxes on that distribution; OR
- Since the RMD rules are suspended, RMDs taken in 2020 are considered eligible for rollover. Therefore, RMDs can be rolled over to another IRA or qualified retirement plan, or returned to the original plan. (There are some restrictions, including a one rollover per 12-month period limit and the exclusion of inherited IRAs on rollovers, so check out IRS Notice 2020-51 (PDF) for more information.)
The CARES Act provisions apply to most retirement plans, including traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k) plans, 403(b) plans, 457(b) plans, profit-sharing plans, and other defined-contribution plans.
The RMD suspension does not apply to qualified defined benefit plans (like pension plans).
More information on the CARES Act and retirement plans can be found on the IRS website at Coronavirus-related relief for retirement plans and IRAs questions and answers.
