RMDs 2020: An unexpected update

In January, I published a blog about the updates to required minimum distribution (RMD) rules that are due to the Setting Every Community Up for Retirement Enhancement (SECURE) Act.

As we are all keenly aware, things have changed dramatically since January. In that January blog, we mentioned that SECURE contained the first RMD changes since the Worker, Retiree, and Employer Recovery Act (WRERA) of 2009. On March 27, 2020, Congress passed and the President signed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which includes, among many other relief items, a change very similar to the WRERA waiver of RMDs in 2009.

Below is an excerpt from the Milliman Benefits Alert sent to clients recently:

“Required minimum distributions (RMDs) for 2020 are waived for profit sharing, money purchase, 401(k), 403(b) and governmental 457(b) plans. Applies to all RMDs due during 2020, including 2019 initial RMDs due by April 1, 2020.

  • 2020 eligible rollover treatment. If any portion of a distribution made during 2020 would have been treated as a RMD absent this temporary waiver, it is eligible for rollover. However, the 20% federal income tax withholding can be ignored and the distribution is exempt from the IRC Section 402(f) notice requirements (rollover rights explanation).”

The main difference from the WRERA RMD waiver is that the CARES Act allowed for a waiver of all 2019 RMDs due to be paid in 2020. However, because of the timing, most of these RMDs have already been distributed from retirement plan accounts, as the deadline for distribution was April 1, 2020.

If sponsors elect to apply the waiver, they will need to amend their plan documents for this and all other CARES Act provisions by the end of the plan year starting on or after January 1, 2022.

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