Required Minimum Distributions for 2020

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Since the CARES Act was passed, there have been changes to the rules for Required Minimum Distributions for 2020. The gist of it is that, for nearly all defined contribution and personal retirement plans that would normally have required minimum distributions for 2020, the required distribution is waived. Now on to some specifics.

What plans are included?

IRA, 401(k), 403(b), and 457 plans are included. (457 plans by non-governmental entities, such as a credit union, are excluded however.) Additionally, all inherited IRA, 401(k), 403(b), and 457 plans are also included in this waiver.

Any defined benefit plan, such as a pension, is not included in this waiver.

In addition to the above, any person who reached age 70½ during 2019 who had delayed his or her first distribution to April 1, 2020 did not need to take that distribution in 2020. (I realize this is late for you if you were in this boat since April 1 has already passed, but if you missed taking the distribution on time, you should know that you’re okay and you don’t need to take the distribution in 2020.)

Putting it back

Update: Additional guidance has been published by the IRS regarding re-depositing RMD for 2020. Read about the updated guidance here.

If you were at least 70½ in 2019 and have already started taking your distributions, you can avoid taking those required minimum distributions for 2020 altogether.

However, if you had already taken all or a portion of your scheduled required minimum distributions for 2020, you have a couple of options.

First, if you took the distribution within the previous 60 days, you can roll it back into the IRA with no consequences. However, you must also have not done any other indirect rollovers within the previous 12 months, or you will have violated the one-rollover-per-year rule.

If you had another rollover within the prior 12 months, you have a couple more options to consider if you want to undo a distribution for 2020. If you have a 401(k) plan, you could rollover the money into the 401(k) plan with no consequences (assuming your plan allows rollovers). These rollovers are not subject to the one-rollover-per-year rule.

If that’s not available to you, you could convert the distribution to a Roth IRA. If you’re going to have to pay tax on it anyway, and since it’s not considered a required minimum distribution for 2020, this is available to you. You’ll still be out the cost of the taxes, but you could at least preserve the tax-deferral on the funds.

Lastly, there are the CARES Act special distribution rules that might help. Since CARES allows for a distribution and potential re-payment of money from an IRA or other plan if you have been impacted by COVID-19, this failsafe might work. If you have had an impact from COVID-19 (and IRS is still working on exactly what that means but it’s expected to be very liberal), you might be able to re-contribute or pay back any distributions into your IRA or other retirement plan within 3 years with no tax consequences. Something to keep in mind if you find yourself in this position. At the very least you may be able to spread the taxation on your distributions out over 3 years.

Inherited Accounts

Unfortunately, inherited IRA, 401(k), 403(b) and other retirement plans do not have the option of re-contributing or repaying any required minimum distributions for 2020.

Inherited accounts do not have a 60-day rollover window. This is because any moves between one account and another (of inherited funds) must always be done via a trustee-to-trustee transfer, rather than via the 60-day rollover. Administratively there is simply no way to put money back into an inherited retirement account, so it just cannot be undone.

The solitary exception to this rule is, of course, the spouse-beneficiary of an IRA who is treating the IRA as his or her own account or who has previously rolled over the account into his or her own account. Then the IRA is treated the same as if it was not inherited.