Congress passed the largest economic stimulus bill in the nation’s history in March 2020 to address problems caused by the global coronavirus pandemic. Its provisions include a waiver of the rule requiring employees to take a minimum distribution from certain types of retirement accounts by a date after they attain a particular age or when they retire, whichever is later. In 2019, Congress amended the Internal Revenue Code (IRC) to change the age after which a person must take a required minimum distribution (RMD) from 70½ to 72. People who turned 70½ in 2019 were not covered by the new law, however, which created some confusion. The coronavirus stimulus bill alleviates this confusion by waiving all RMDs during 2020.
Required Minimum Distributions Before 2020
Section 401(a)(9) of the IRC requires employees with individual retirement accounts (IRAs) and certain other types of retirement accounts to take an RMD by a “required beginning date,” defined as April 1 of the year following whichever occurs later:
– The person “attains age 70½”; or
– The person retires.
The use of a “half birthday” caused some confusion for people, since anyone born more than halfway through a calendar year would not turn 70½ until the following calendar year. For example, a person who turned 70 in June 2010 would turn 70½ in December 2010. Their RMD date would be April 1, 2011. A person who turned 70 in July 2010, however, would turn 70½ in January 2011. Their RMD date would be the following year, on April 1, 2012.
Required Minimum Distributions in Early 2020
Congress passed the Setting Every Community Up for Retirement Enhancement (SECURE) Act in late 2019, as part of the Further Consolidated Appropriations Act of 2020. The SECURE Act amended § 401(a)(9) of the IRC to change “age 70½” to “age 72.”
This provision, however, took effect at the beginning of 2020. People who turned 70½ during 2019, and who had already retired, were still obligated to take an RMD by April 1, 2020. People who have turned or will turn 70½ in 2020 have no RMD obligations. They will turn 72 in 2021 or 2022, and must take an RMD by April 1 of 2022 or 2023.
Waiver Under the CARES Act
Section 2203(a) of the Coronavirus Aid, Relief, and Economic Security (CARES) Act effectively waives all RMDs that would have had to occur by April 1, 2020. This includes people who turned 70½ in 2019 and were still covered under pre-SECURE Act provisions of the IRC, and people who retired in 2019 after having already turned 70½ earlier.
Rollover Under the CARES Act
If a person whose RMD would have been waived by the CARES Act already took a distribution in 2020, they might be eligible to roll over the amount distributed. This only applies to distributions made in 2020, not 2019, and it does not apply to anyone who has already rolled over a distribution to the same IRA in the previous twelve months. It also only applies to distributions made by the employees themselves, not their designated beneficiaries. A person who is not covered by any of these exceptions can roll over the amount of a distribution within sixty days of the date they received it.
If you need help with a tax-related issue, the tax advisors at the Enterprise Consultants Group are available to assist you. Please contact us today online, or give us a call at (800) 575-9284 to schedule a consultation with a member of our team.