Retirees over the age of 70 ½ might be struggling to make sense of the new regulations with the passage of the SECURE Act at the end of 2019 and the current CARES Act. These new regulations may be confusing for retirees in regard to required minimum distribution (RMD) rules.
The SECURE Act passed last December is permanent and essentially raises the age for RMDs to 72; however, it went into effect January 2020. Therefore, if an individual turned 70 ½ in 2019, RMDs must still be taken in 2019 and 2020, since the age of 72 would not be reached until 2021.
So, how does the CARES Act come into play? Some say it’s like an RMD holiday. The CARES Act legislation essentially suspended RMDs from IRAs, inherited IRAs, 401(k)s, and inherited 401(k)s during 2020 and gave everyone the chance to put it back into their account within 60 days without taxation.
If an individual has already taken some or all RMDs and has gone past the 60-day mark, these funds may still be rolled over. The recently issued Notice 2020-51 allows an account holder to rollover all RMDs funds, distributed January 2020 to now, provided the rollover is made by August 31, 2020. Additionally, this move will not count as the one-per-year rollover allowed, so you may still enact a rollover for another purpose.
Another new benefit for retirement accounts is the ability to make a withdrawal from a qualified retirement plan or IRA due to a COVID-19 related issue. An individual can “self-certify” they have been financially impacted due to coronavirus-related circumstances. Plus, individuals under 59 ½ will be exempt from the 10% penalty tax for early withdrawal. Congress realized the need for hardship withdrawals, which meant individuals could access funds in their accounts without penalty. The maximum withdrawal amount is capped at $100,000.00. Participants may be permitted to recontribute the amount over a 3-year period, following the date of distribution, without affecting normal contribution limits. Repayment may be spread over the years 2020, 2021, and 2022 equally, as opposed to the entire amount being taxable the year the distribution was taken.