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August 31 Is 2020 RMD Rollover Deadline For Some

“Can you remind me of the key points related to the waiver of RMDs for 2020?”

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare.  We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with a financial advisor from Maryland is representative of a common inquiry related to the 2020 waiver of required minimum distributions (RMDs) and rollovers of such amounts.

Highlights of the Discussion

  • You ask a timely question as August 31, 2020, is a key deadline by which certain rollovers of 2020 RMDs must be accomplished.
  • Section 2203 of the Coronavirus Aid, Relief, and Economic Security (CARES) Act (CARES Act) waives RMDs for IRAs, defined contribution, 403(a) qualified annuity, 403(b) or governmental 457(b) plans for 2020.
  • Defined benefit plans are not covered by this wavier.
  • As an added bonus under the CARES Act, and as clarified by Notice 2020-51, a distributed amount that otherwise would have been an RMD for 2020 is eligible for rollover, including
    • First-year 2019 RMDs that were taken by April 1, 2020,
    • First-year 2020 RMDs due to be taken by an April 1, 2021; plus
    • Amounts that are part of a series of periodic payments (that include a 2020 RMD) made at least annually over life expectancy, or over a period of 10 or more years.[1]
  • The deadline for rolling over 2020 RMDs is the later of August 31, 2020, or 60 days after receipt of the distribution;
  • A 2020 RMD that is rolled over by the August 31, 2020, deadline does not count toward the one-rollover-per-12-month rule applicable to IRA-to-IRA rollovers;
  • Nonspouse beneficiaries also are allowed to roll over 2020 RMDs, if they do so by August 31, 2020; and
  • A 2020 RMD from a plan or IRA may be rolled back into the same plan or IRA (provided the plan permits incoming rollovers).

Conclusion

The CARES Act waives the necessity to take 2020 RMDs from IRAs and most qualified retirement plans. August 31, 2020, is a key deadline by which certain rollovers of 2020 RMDs must be accomplished. Please refer to IRS Notice 2020-51 for additional guidance.

 

[1] Not to be confused with substantially equal periodic payments exempt from the 10% early distribution penalty tax under IRC Sec. 72(t)

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SSA’s “Heads Up” on Private Pension Benefits

“My client received a notice from the Social Security Administration (SSA) titled, ’Potential Private Pension Benefit Information.’ Why did he receive this form and what does it mean?”

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare.  We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with a financial advisor from Pennsylvania is representative of a common inquiry related to notices from the SSA.

Highlights of the Discussion

  • Your client received a Form SSA-L99-C1, Potential Private Pension Benefit Information from the SSA to inform him that he “ … MAY be entitled to some private pension upon retirement.” His family may be entitled to retirement or survivor benefits as well.
  • He received the form because, when an individual files a claim for Social Security benefits, the SSA automatically issues this notice to alert the individual that the SSA has knowledge of potential other retirement benefits that he or she may be entitled to receive under a defined contribution plan and/or defined benefit plan maintained at his former private employers.
  • According to a study,[1] 26 percent of terminated individuals over a 10-year period left their assets in their former employers’ plans, which equated to 61 percent of plan assets in motion. One reason for this may be that former participants with higher plan balances are more likely to leave their plan balances behind than those with smaller plan balances.
  • Your client may already be well aware of these additional benefits—and may have already received some of or all of them. But if not, you should review the plan information on the notice with your client and contact the plan administrator identified to make a claim for any benefits that may be due.  Some or all of these benefits may be eligible for rollover.
  • The SSA keeps a database of individuals who have been identified by the IRS as having qualified retirement plan benefits under private employer-sponsored plans. When a former employee leaves behind accrued retirement benefits in an employer’s retirement plan, the employer must report such information to the IRS.
  • The information on the SSA form is somewhat limited. Fortunately, the Department of Labor (DOL) put together a helpful Q&A piece on this topic FAQs on SSA Potential Private Retirement Benefit Information.
  • Your client can contact the DOL with additional questions as well either on-line at “Ask EBSA” or by calling 1-866-444-3272.

Conclusion

Consider the Form SSA-L99-C1, Potential Private Pension Benefit Information  issued by the SSA, as a friendly, “heads-up” notice regarding private retirement benefits to which an individual may be entitled.

[1] Alight, “What do workers do with their retirement savings after they leave their employers,” 2018

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Form 5500 and the Automatic Filing Extension

“My client failed to file his Form 5500 for his company’s 401(k) plan by the deadline of July 31, 2020. Is there any way to get a filing extension?”

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare.  We bring Case of the Week to you to highlight the most relevant topics affecting your business. A recent call with a financial advisor from Pennsylvania is representative of a common inquiry related to filing IRS Form 5500.

Highlights of the Discussion

Your client would have had to have filed a Form 5558, Application for Extension of Time To File Certain Employee Plan Returns by the company’s regular due date (i.e., July 31, 2020, in this case) to request a one-time extension (for 2 ½ months) to file its Form 5500 for the year. However, if your client has filed for an extension to submit his company’s business tax return for 2019, he still may be in luck with respect to filing his plan’s Form 5500 for the year.

The IRS will grant an automatic extension of time to file the Form 5500 Annual Return/Report of Employee Benefit Plan for a year—until the business’s due date for filing its federal income tax return—if  all of the following conditions are met:

  1. The plan year and the employer’s tax year are the same;
  2. The employer has been granted an extension of time to file its federal income tax return to a date later than the normal due date for filing the Form 5500; and
  3. A copy of the application for extension of time to file the federal income tax return is maintained with the filer’s records.

 An extension granted by using this automatic extension procedure cannot be extended further by filing a Form 5558, nor can it be extended beyond a total of 9½ months beyond the close of the plan year. (See the Instructions to Form 5500, page 4.)

Unfortunately, if your client did not file Form 5558 for the one-time extension, and does not qualify for the automatic extension to file by the tax return deadline, he could face late filing penalties. Those penalties could be reduced by participating in the Delinquent Filer Voluntary Correction Program.

Conclusion

Business owners who have been granted an extension to file their business tax returns automatically receive an extension of the deadline to file Forms 5500 Return/Report for their retirement plans, if they satisfy certain conditions.

© Copyright 2020 Retirement Learning Center, all rights reserved