The CARES Act waives required minimum distributions (RMDs) during 2020 for IRAs and defined contribution retirement plans. RMDs are also waived for beneficiaries with inherited IRAs and accounts inherited in a retirement plan. You’re not required to have been affected by the coronavirus to waive your RMD for 2020.
Distributions of an amount that would have been an RMD in 2020 can generally be rolled over to another workplace retirement plan or IRA within 60 days of the distribution. RMDs rolled over by August 31, 2020, have special relief.
RMD rolled over by August 31, 2020: Notice 2020-51 [PDF] provides that if a distribution from an IRA of an amount that would have been an RMD in 2020 was made between January 1, 2020, and July 2, 2020, then the distribution can be rolled over by August 31, 2020. If a 2020 RMD was distributed after July 2, 2020, then the distribution must be rolled over within 60 days of the distribution. A 2020 RMD that’s part of a series of substantially equal periodic payments does not prevent it from being eligible for rollover.
Additionally, if a 2020 RMD was distributed before August 31, 2020, but was repaid to the distributing IRA by August 31, 2020:
- The repayment is not subject to the one rollover per 12-month period limitation.
- An RMD from an inherited IRA can be repaid to the distributing IRA.
Inherited IRAs: Distributions from inherited IRAs are not required in 2020. For deaths prior to 2020, beneficiaries are required to take distributions using the 5-year rule or yearly distributions over their life expectancy.
The 5-year rule requires the inherited IRA to be distributed within 5 years following the year of the account holder’s death. 2020 does not count toward the 5 years. You would essentially have six years, instead of five, to distribute the inherited IRA if the account holder died before 2020.
If you were taking distributions using the lifetime distribution option available for deaths prior to 2020, you’re not required to take a distribution in 2020. For an account holder who died in 2019, you would normally be required to begin taking distributions from the inherited IRA by the end of the following year, 2020, to take advantage of the lifetime distribution option. Since 2020 does not count, you have until the end of 2021 to begin taking distributions over your lifetime.
Tax treatment of 2020 RMDs that are not rolled over: RMDs in 2020 that are not rolled over or repaid may be eligible to be treated as coronavirus-related distributions if you’re a qualified individual. A 2020 RMD that otherwise qualifies as a coronavirus-related distribution may be repaid over a 3-year period or have the taxes due on the distribution spread over three years.
Special note for inherited IRAs: If a withdrawal from an inherited IRA qualifies as a coronavirus-related distribution, income from the withdrawal may be spread over three years for income inclusion. However, the withdrawal may not be repaid to the inherited IRA.
Substantially equal periodic payments are not waived
If you’re using substantially equal periodic payments to meet one of the exceptions to the 10% additional tax on distributions prior to age 59 ½, you’re still required to take your periodic payment in 2020. If you do not take your periodic payment in 2020, you lose the exception and those withdrawals taken in prior years will become subject to the 10% additional tax.