2020 Changes to Required Minimum Distributions - What You Need to Know

There have been a lot of changes regarding Required Minimum Distributions (“RMDs”) in the past 6 months! For anyone that wants to hit the pause button on this chaotic state of affairs and get an RMD “do over”, June 23rd was a good day.

On Tuesday, June 23, 2020, the IRS released formal guidance expanding relief for participants in 401(k)/403(b) plans, IRAs, and their beneficiaries. Specifically, the new guidance extends existing relief backwards (to distributions taken as far back as 1/1/20); extends existing relief forward (by moving the deadline to “reverse” or “undo” an RMD from 7/15/20 to 8/31/20); and by providing a new category of relief (allowing inheritance beneficiaries to re-contribute their RMDs).

The landscape for 2020 RMDs – combining the SECURE Act, the CARES Act, and all of the IRS guidance to date - is explained in the following FAQs.

Q: Who has to take an RMD from their 401(k)/403(b)/IRA during 2020?
A: No one; RMDs are waived for 2020.

Q: Does that include first year RMDs?
A: Yes, first year RMDs (e.g. 2019 RMDs) for those who turned 70.5 during 2019 are waived for 2020. In addition, IRA owners who were younger than 70.5 on 12/31/19 are subject to the new SECURE Act rules: Their first year RMDs don’t start until age 72.

Q: Does that include RMDs for inheritance beneficiaries?
A: Yes, all RMDs are waived for 2020, so beneficiaries who inherited IRAs or 401(k)/403(b) plan accounts are also exempt from RMDs for 2020.

Q: If I choose not to take an RMD this year, do I have to take 2 RMDs next year?
A: No. RMDs are waived for 2020, not delayed. For inheritance beneficiaries, if the new 10-year payout rules apply, the beneficiary will still receive the full 10 years starting next year: 2020 will not count against them.

Q: What if I took some or all of my 2020 RMD already? Can I “undo” the distribution and put the money back?
A: Yes! There is relief for any 2020 RMD distribution made on or after 1/1/20 that is corrected by 8/31/20.

Anyone can put their RMD back into the IRA/401(k)/403(b) from which it was taken, as long as it is done by 08/31/20. Note: this includes inheritance beneficiaries, even though rollovers and contributions to inherited IRAs are generally prohibited.

In addition, plan participants/IRA owners (but not inheritance beneficiaries) can “roll over” RMDs they have taken during 2020 into any tax-deferred account IF the rollover rules apply AND the roll over is completed by 08/31/20.

Q: Is the CARES Act relief all-or-nothing, or can I take/return some (but not all) of my RMD?
A: It is not an all-or nothing proposition. You can elect to take none, some, or all of your 2020 RMD, and you can elect to return none/some/ or all of your 2020 RMD.

Q: What if I made a qualified charitable distribution (a “QCD”). Can I undo that?
A: Generally, no. A QCD is a charitable donation, and charitable gifts are irrevocable and cannot be unilaterally unwound.

Q: If I took my entire 2020 RMD, does the CARES Act relief provide for additional IRA withdrawals tax-free?
A: No. There is some additional retirement plan relief – like a waiver of the 10% early withdrawal penalty for coronavirus distributions and expanded plan loan provisions – but not additional tax-free IRA distributions.

If you have any questions, please contact Washington Trust Wealth Management at 800-582-1076 or by email at info@washtrustwealth.com.

This overview provides general information based on currently available data and takes into account the IRS’ guidance to date. All material has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. This FAQ does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. Please consult with a financial advisor, attorney or tax professional regarding your specific investment, legal or tax situation as this is not intended as legal or tax advice.