We have spent a lot of time discussing the massive amount of liquidity that the CARES Act has added into the economy since its passing back in March. The liquidity was born by the Payroll Protection Plan which gave small businesses forgivable loans to meet payroll, rent and utility payments and by economic stimulus checks which were spread to individuals. The CARES Act also made important adjustments to the Required Mandatory Distribution law for IRAs and defined contribution plans for the year 2020.
IRS Notice 2020-51 clarified some of the open issues that Advisors identified with March’s roll out.
Here are the highlights for the new rules in 2020.
Under the CARES Act, an individual who would otherwise be required an RMD from a retirement account may choose to skip a distribution for 2020. If an individual has already taken a distribution in 2020, it will be classified as voluntary – not mandated by RMD rules. Under normal rules, a voluntary distribution may be rolled over to a different IRA within 60 days without counting as a distribution and therefore avoiding income tax. If you choose under the CARES Act, you may rollover or repay your distributions that were taken after January 1, 2020 back into an IRA until August 31, 2020. (The normal 60 day rollover period was extended.)
Here are a few more notes about changes to IRA rules in 2020.
The “one rollover per 12 months” restriction has been waived to allow 2020 RMDs to be rolled back into a retirement account. The RMD waiver for 2020 does not change an individual’s RMD required beginning age. The 2020 RMD waiver applies to beneficiaries of inherited IRAs as well. A 2020 RMD is also waived for individuals who turned 70½ in 2019 and whose first RMD was due on 4/1/2020.
For further notice and guidance about how the changes to 2020 RMD rules may affect your plan or the plan of someone you know, please do not hesitate to reach out to us for further assistance.
Citations
IRS Notice 2020-51 www.irs.gov/pub/irs-drop/n-20-51.pdf
