The CARES Act – Provisions related to 2020 Required Minimum Distributions
Late Friday, March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act as a part of the $2.2 trillion fiscal package aimed at alleviating the financial toll on individuals and businesses.
The Act makes major temporary changes to rules governing a broad array of qualified retirement plans including traditional, SEP, and SIMPLE IRAs as well as employer-sponsored 401(k), 403(b), and 457(b) retirement plans. As many investors have seen a significant depreciation in value of their retirement assets in the last five weeks, the changes to the rules having application in the current year are intended to alleviate retirement security concerns. Specifically, certain required minimum distribution (RMD) rules have been suspended to enable investors to leave retirement assets untouched and avoid forced liquidation of certain depressed assets during a time of historically high volatility.
Some of the Act’s more important provisions related to required minimum retirement plan distributions are discussed below.
Required Minimum Distributions (RMDs) are waived in 2020.
In other words, any retirement account owner or designated beneficiary required to take a distribution from their account in 2020 may now elect to leave these retirement assets untouched in 2020. Notably, the suspension of RMDs in 2020 also applies to 2019 RMDs required to be taken by April 1 of 2020 by retirement account owners who reached 70.5 years of age before December 31, 2019. For these account owners, both 2019 and 2020 RMDs have been waived.
2020 RMDs already received can be rolled over to qualified retirement plans.
For account owners who have already received part or all of their 2020 required distribution in the first part of 2020, the Act allows for reinvestment of any 2020 distributions in a qualified plan within sixty days of the original distribution date. In this case, a check written or cash transfer to a retirement account within sixty-days would be permitted as a once-per-year rollover. For distributions received in 2020 outside of this sixty-day window (in January or early February), account owners may still be permitted to rollover this sum to another qualified plan (within the next three years) as a ‘Coronavirus-Related Distribution’ as long as they can substantiate, under the Act’s very liberal guidelines, that they, their spouse, or their dependent has been significantly impacted by the COVID-19 crisis.
Unfortunately, non-spouse beneficiaries of inherited retirement accounts who received a 2020 RMD are not eligible to rollover this distributed amount to a qualified plan.
Qualified Charitable Distributions are Still Available for 2020.
For those IRA account owners and beneficiaries that have been making charitable contributions through distributions from their account may continue to do so. Since there is no RMD to offset, this would be a voluntary. However, it still allows individuals to use pre-tax dollars for charity subject to the same dollar limits.
Where do we go from here?
The suspension of rules requiring certain retirement asset distributions in 2020 will provide account owners and designated beneficiaries the time to thoughtfully evaluate their financial plans in light of the tremendous volatility and newly bearish investor sentiment characterizing the current market conditions.
WMS will continue to incorporate the provisions of the new law into your estate, income tax, and cash flow plans, making recommendations accordingly. In the interim, please do not hesitate to contact your WMS advisor with any questions or concerns.