IRS Guidance on CARES Act Retirement Plan Changes

Required Minimum Distribution (“RMD”) Waiver

The CARES Act, signed into law on March 27, 2020 allowed individual participants in an IRA, 401(k), 403(b) or all kinds of pension plans to waive their required minimum distributions (RMD) in 2020. The waiver is made by not taking the RMD. Any RMD that was received prior to the effective date of the CARES Act was treated as a distribution eligible for rollover if rolled over within 60 days of receipt.

Notice 2020-51 waives the 60 rollover requirement and allows any RMD received in 2020 to be rolled over if such rollover is accomplished on or before August 31, 2020.

The SECURE Act, signed into law in December 2019 changed the date for the first RMD distribution from April 1 of the year following the year a participant turns 70 ½ to the April 1 following the year a person turns 72. This change is effective for distributions required in the year 2020. The Notice allows a rollover of a distribution that would have been an RMD under the old (pre SECURE Act) rules even though such a distribution is no longer an RMD.

Coronavirus Related Distributions

The CARES Act allows qualified participants in pension plans to take up to a $100,000 penalty free distribution in 2020. An individual is considered to be qualified if they or their spouse was either diagnosed with COVID or suffered adverse financial conditions as the result of a quarantine, furlough or layoff or was unable to work if they could not obtain childcare for COVID related reasons. The Act also provided that any such distribution would be included in income evenly over a three-year period beginning in 2020 unless the participant elected to include it in income in full in 2020. Finally, the Act allowed any such distribution to be excluded from income if it is repaid within three years of its receipt.

Notice 2020-50 provides detailed examples of how such repayments would be treated if portions of the distribution had already been taxed. In such cases, amended returns may be required.

Please note that these rules all relate to federal income taxes. There are States that may not follow the CARES Act in part or in full resulting in potential differences.

Please reach out to your Citrin Cooperman tax team member to discuss these issues or any other questions you may have.