I recently received clarification regarding the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), enacted by Congress and signed into law on March 27, 2020, suspending Required Minimum Distributions (“RMD”) from most retirement plans for the year 2020, and providing special favorable tax rules for “coronavirus related distributions.” On June 22nd extensive guidance was issued by the Treasury Department interpreting and clarifying the applicable sections of the 880 page CARES Act while expanding the number of people eligible to withdraw “coronavirus related distributions” (“CRD”) from their retirement accounts and offering substantial but temporary relief to persons who took their RMD prior to the enactment of the CARES Act.
If you took a 2020 RMD and you would like to put it back into a retirement plan like it never happened so you don’t have to pay tax on it, there are three paths to accomplishing that result:
If the distribution came from an IRA, you can put it back tax-free into the account it came out of by August 31, 2020, even if it is an inherited IRA of which you are a nonspouse beneficiary (despite the fact that nonspouse beneficiaries can “never” roll over distributions from an inherited plan). The “once-per-12-months” limit on IRA-to-IRA rollovers will not apply to these repayments. This totally new and one-time relief does not apply to distributions from non-IRA plans.
If the RMD is an otherwise eligible rollover distribution, you can roll it over within 60 days or by August 31, 2020, whichever is later. This path is not available to nonspouse beneficiaries and is subject to the once-per-12-months limit on IRA-to-IRA rollovers.
If the distribution qualifies as a CRD, you can roll it over any time within three years after you received it. This path is not available to nonspouse beneficiaries but is not subject to the once-per-12-months limit on IRA-to-IRA rollovers. The guidance from the Treasury Department substantially increased the categories of “qualified individuals” who can receive CRDs, so that now, for example, a pay cut, not just an hours cut, experienced by your spouse or household member, not just yourself can make you CRD-eligible if it resulted in adverse financial effects.
I want to note that there are certain exceptions to the suspension of RMDs. The 457 plans sponsored by non-government tax-exempt employers (e.g., a credit union) do not have their RMDs suspended for 2020. This is a common occurrence in retirement plan rules because the government-employer-type 457 plans get more favorable deals than 457s sponsored by other tax-exempt employers. Thus, these plans must continue paying RMDs in 2020 and recipients do not have any option to roll them over.
Similarly, Defined Benefit plans do not have their 2020 RMDs suspended if they are §401, §403, or §457 plans. Under the special minimum distribution rules that apply to Defined Benefit plans, every distribution the retired individual receives is an RMD.
Unfortunately, neither the CARES Act, nor the subsequent guidance from the Treasury Department addresses whether an IRA that has been “annuitized” is subject to the “defined benefit” minimum distribution rules. Since with respect to IRAs CARES does not specify “defined contribution” only, it is unclear if an annuitized IRA can skip the 2020 RMD, or whether these IRAs are subject to the same rules as Defined Benefit plans, and so cannot skip the 2020 RMD.
If you need further information about the CARES Act and its implications to your retirement plan, please feel free to contact me. There is no charge for this consultation.
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