New Required Minimum Distribution Guidance

On March 27, 2020, Congress approved and President Trump signed into law the CARES Act, a $2 trillion stimulus package in response to the COVID-19 (coronavirus) pandemic. The CARES Act was passed during the COVID-19 onset and was designed to provide relief to Americans negatively affected by the virus fallout. Most of the legislation focused on those with lost wages or a job loss, but it spanned other topics as well.

One of the provisions allowed for individuals to waive their Required Minimum Distribution (RMD) in 2020. Generally, individuals over age 72 must withdraw a certain amount from their tax-deferred IRAs, 401(k)s, and the like. However, the CARES Act waives RMD requirements for 2020. This relief is broad and applies to IRAs (including SEP and SIMPLE IRAs) and 401(k), 403(b), and 457(b) plans.

What if you were proactive and had already taken your RMD for 2020 prior to the new legislation? Previously, it was understood that individuals who already took their 2020 RMD early this year would not be able to “undo” it unless certain conditions were met. Among these somewhat restrictive criteria was only having a 60-day window to “undo” the RMD. However, the IRS has finally issued new, clearer guidance on this topic.

According to IRS Notice 2020-51, all unwanted 2020 RMDs that were eliminated by the CARES Act may now be returned up until August 31, 2020. This guidance also applies to beneficiaries who took an RMD. The IRS press release is found at this link.

Returning an RMD that was taken early this year will be a popular choice for individuals who have the cash available to do so. Granting one more year of tax deferment to the account, it will help keep their taxable income lower for 2020. Please let us know if this prompts any questions or if we can be helpful.

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