BSB | RMD Rollovers: What You Need to Know

The CARES Act included some noteworthy changes to retirement accounts, specifically required minimum distributions (RMDs). Not only did the Act eliminate RMDs for 2020, but it also extended the 60-day rollover period to August 31, 2020 for individuals who had already taken RMDs for the year. The IRS recently released further guidance on the implementation of the RMD changes.

If you have been affected by the changes, here are a few things to consider.
  • Any taxpayer who would have been required to take an RMD in 2020 can skip that distribution. This includes anyone who turned age 70 ½ in 2019 and would have had to take the first RMD by April 1, 2020.
  • Any taxpayer who has already received an RMD for 2020 has until August 31, 2020 to roll over those funds to an IRA account to be treated as nontaxable.
  • Plans that permit an employee or beneficiary to choose between the five-year or life expectancy rule for RMDs will have an extended deadline. If the plan provision would typically require election by the end of 2020, the deadline will now be extended through the end of 2021.
  • The accommodations include a “special rule” that extends the time for determining a direct rollover for a nonspouse beneficiary if the participant died in 2019. As with the five-year rule, the deadline to choose a direct rollover utilizing the life expectancy rule will be extended through the end of 2021.
  • The RMD waiver does not change an individual’s required beginning date, whether the individual has already started or has delayed RMDs.
  • If an employee retires during 2020 and has a required distribution beginning date of April 1, 2021, that employee must still receive a 2021 RMD by the end of 2021.
  • The only deadline extensions and modified rollover requirements are those specifically outlined in the CARES Act. There is no extension to the September 30 deadline following the year of death, the October 31 deadline for the beneficiary to provide information to the plan administrator, the December 31 deadline to establish separate accounts or the five-year or ten-year periods.
  • Under most circumstances, spousal consent will not be required to suspend 2020 RMDs and restart 2021 distributions. In some cases, spousal consent may be required if there is a new annuity starting date.
  • Distributions from a plan can be rolled over into the same plan, as long as the rollover meets certain requirements.
  • Periodic payments that are designed to satisfy the exception to the 10% additional tax are not included in the CARES Act provisions. If the payments are stopped in 2020 for any reason other than death or disability before age 59 ½ or before five years from the date of the first payment, the stopped payments will be considered a modification which will make all payments in the series subject to recapture tax.
  • The waiver of 2020 RMDs does not apply to a defined benefit plan.

These are just a few considerations of the new CARES Act and its impact on RMDs. Every situation is different and unique. If you have questions about distributions and would like to speak to an accounting professional, please contact BSB today. We will help you plan according to your specific circumstances.