IRS guidance provides RMD rollover relief

ALERT: IRS guidance provides RMD rollover relief

July 16, 2020

IRS guidance has provided relief to individual taxpayers affected by COVID-19 who take distributions or loans from retirement plans and offers guidance to employers regarding the administration of loan relief.

The CARES Act was enacted to mitigate the economic effects of the COVID-19 pandemic. Among other things, it extends favorable tax treatment to qualified individuals who take so-called “coronavirus-related distributions” (CRDs) from IRAs, 401(k) plans and certain other retirement plans.

Who qualifies?

On June 19, 2020, the IRS issued additional guidance (Notice 2020-50) regarding the CARES Act and who is considered a “Qualified Individual” (QI) regarding eligibility to take advantage of the provisions adopted by plans. Plan administrators should reach out to anyone who may have requested relief due to COVID-19 but was denied due to what information was available.

Below is the new QI definition that is effective back to March 24, 2020, when the Act was signed into law. The notice expands the definition to consider additional factors such as:

  • reductions in pay;
  • rescissions of job offers;
  • an individual’s delayed start date; and
  • adverse financial consequences to an individual arising from the impact of the COVID-19 coronavirus on an individual’s spouse or household member.

A QI is now anyone who:

  • is diagnosed with COVID-19 by a test approved by the Centers for Disease Control and Prevention (CDC); or
  • whose spouse or dependent is diagnosed with COVID-19 by a test approved by the CDC; or
  • experiences adverse financial consequences because the individual, the individual’s spouse or a member of the individual’s household experienced the following due to COVID-19:
    • being quarantined;
    • being furloughed;
    • being laid off;
    • having work hours reduced;
    • being unable to work due to lack of childcare;
    • closing or reducing hours of a business that they own or operate;
    • reduced pay or self-employment income; or
    • having a job offer rescinded or start date for a job delayed.

How should employers handle RMDs?

In addition, on June 23, 2020, additional guidance was issued (Notice 2020-51) on how Required Minimum Distributions (RMD) are to be handled for 2020. The CARES Act waives the RMD rules for certain defined contribution plans and IRAs for calendar year 2020. The waiver applies to both 2019 RMDs required to be taken by April 1, 2020, and RMDs required for 2020. It applies for calendar years beginning after December 31, 2019.

Due to the late passage and signing of the CARES Act, some individuals had already taken the RMD and were outside of the 60-day rollover period and could not take advantage of returning the distribution or rolling it over into another account. There is also the issue of the “one (rollover) per 12 month” rule for IRAs.

The new guidance allows for these funds to be put back into qualified accounts until the later of 60 days after receipt or August 31, 2020, even if the distribution normally would be treated as part of a series of substantially equal periodic payments. The 12-month rule is also waived for IRAs under this guidance.

In addition, a plan must amend the document for the waiver of RMDs in 2020. The amendment must be executed by the last day of the 2022 plan year under the CARES Act. This is an amendment that can be included when you have your plan document restated if you are subject to the current restatement period.

For more information

Please reach out to your AGH professional, or Brad Bechtel using the information below, with any questions or to map out a plan to execute any of the elections you wish to make.

Brad Bechtel

Senior Vice President
Employee Benefit Services

Brad Bechtel leads AGH’s employee benefit services (EBS) division, which serves clients nationwide. EBS is one of the region's largest providers of retirement plan recordkeeping services for daily valuation plans. The division provides consulting services to clients on employee benefit plans, including plan design, implementation, operation, fiduciary due diligence, compliance, and through affiliate AGH Wealth Management, discretionary and non-discretionary investment fiduciary services, investment advisory services and employee education.

Brad is experienced in executive compensation, including non-qualified, phantom stock, top hat and excess benefit plans, as well as other deferred compensation approaches. He has consulted for numerous Fortune 500 corporations on investment management and fiduciary due diligence. He also provides search and selection due diligence consulting services for companies seeking new investment and recordkeeping providers for their qualified plans. Brad is a registered investment advisor who holds Series 7, 24 and 66 FINRA registrations, and he is a member of the American Society of Pension Professionals & Actuaries.

Information in this document has been obtained by Allen, Gibbs & Houlik, L.C. from sources believed to be reliable. However, AGH does not guarantee the accuracy nor completeness of any information. This communication does not and is not intended to provide legal, accounting or other professional advice or opinions on specific facts or matters, and accordingly, AGH assumes no liability whatsoever in connection with its use. Nothing in this communication can be used to avoid penalties that may be imposed by a governmental taxing authority or agency.

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