IRS Extends Rollover Relief for 2020 Required Minimum Distributions from Retirement Plans

The CARES Act provided a temporary waiver of the required minimum distribution (RMD) rules for certain retirement plans. The waiver applies to 2020 RMDs from certain defined contribution plans and IRAs. Individuals are generally required to begin taking mandatory distributions at age 72, or age 70 ½ if you were 70 ½ before January 1, 2020.

This was beneficial for many retirees because it allowed them to leave money in their retirement plans for future growth. However, for individuals that had already taken a distribution, there was limited relief to return funds to the plan. In April, the IRS issued Notice 2020-23 that extended certain time-sensitive deadlines, including the time to “rollover” an RMD. At that time, an RMD taken between February 1, 2020, and May 15, 2020, could be rolled over by July 15, 2020. An RMD taken in January 2020 or after May 15, 2020, did not qualify.

Recently, the IRS issued Notice 2020-51 which expanded the rollover relief for qualifying RMDs taken this year and extended the rollover date to August 31, 2020. This is a welcome opportunity for plan participants that took an RMD in January or after May 15 and need more time to return the funds. This relief also applies to beneficiaries of inherited IRAs and individuals whose required beginning date is April 1, 2021. For IRA’s, no plan amendments are required to utilize the 2020 RMD waiver. The repayment is not subject to the one rollover per 12-month period limitation and distributions may be returned to the same plan.

Notice 2020-51 also provides important guidance around frequently asked questions and two sample plan amendments that sponsors may adopt allowing plan participants and beneficiaries whose RMDs are waived the choice whether to receive the waived RMD or not. Plan sponsors have until January 1, 2022, to adopt any plan amendment for the CARES Act changes.

It’s important to note that retirement distributions from defined benefit retirement plans don’t qualify for this relief. For some taxpayers, returning the funds may not be the best option, especially if they anticipate being in a low bracket this year or need the money now.

The combination of financial implications and short decision time frame may leave you struggling to determine the best choice for your circumstances. Consider working with one of Aprio’s knowledgeable advisors, who are prepared to guide you through the decision process. Contact your Aprio advisor or reach out to Frank Ciaburri, engagement director in Aprio’s Private Client Services group.