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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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Non Spouse Beneficiary Rollovers

“My client, who is a nonspouse beneficiary of a deceased 401(k) plan participant, requested and received a distribution of the inherited account balance.  Can she complete a 60-day rollover?”

ERISA consultants at the Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. We bring Case of the Week to you to highlight the most relevant topics affecting your business.

Highlights of Discussion

  • No, the IRS does not allow nonspouse beneficiaries to complete indirect or 60-day rollovers of amounts received from a 401(k) plan.
  • If a nonspouse beneficiary wants to complete a rollover of inherited plan assets, he or she must do so through a “direct rollover” to an inherited IRA.  (See IRS Notice 2007-7  Q&A 15). The Pension Protection Act of 2006 introduced this option for nonspouse beneficiaries, effective for 2007 and later years. The direct rollover option for nonspouse beneficiaries applies to IRC §401(a) qualified retirement plans, as well as IRC §§403(b) and governmental 457(b) plans.
  • A direct rollover is a transfer of plan assets from the trustee of the plan to the trustee of the inherited IRA (i.e., a trustee-to-trustee transfer), without receipt by the beneficiary of the assets.
  • A qualified plan can (but is not required to) offer a direct rollover of a distribution to a nonspouse beneficiary, provided the distributed amount satisfies all the requirements to be an eligible rollover distribution.
  • The direct rollover must be made to an IRA established on behalf of the designated beneficiary that will be treated as an inherited IRA. If a nonspouse beneficiary elects a direct rollover, the amount directly rolled over is not includible in gross income in the year of the distribution.
  • The receiving IRA must be established in a manner that identifies it as an IRA with respect to the deceased plan participant and the beneficiary, for example, “Tom Smith as beneficiary of John Smith.”
  • If a nonspouse beneficiary receives an amount distributed from a plan, the distribution is not eligible for rollover, and is includible in income in the year of the distribution.

Conclusion

The plan-to-IRA rollover rules for nonspouse beneficiaries are different than those that apply to spouse beneficiaries. If a nonspouse beneficiary wants to complete a rollover of inherited plan assets, he or she must do so through a direct rollover to an inherited IRA.

 

 

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© Copyright 2021 Retirement Learning Center, all rights reserved