IRA owners in mandatory distribution status need not take their Required Minimum Distributions for tax year 2020.  The waiver is part of last week’s legislative action taken by Congress and signed into law by the President to provide fiscal stimulus during the COVID-19 crisis.

Governmental logic (not meant as an oxymoron but…) is that without the waiver withdrawals would be disproportionate to total account values.  2020 RMDs would be based on 12/31/19 values.  The DJIA closed at 28,462.  At the time legislation was passed it was hovering around 22,000.

IRA owners who do not need the funds can benefit as they will be able to reduce their 2020 income tax bills.  Those needing the funds for living and other expenses will take their withdrawals anyway and not receive any benefit from the waiver.

RMDs already taken can be undone – maybe – as the legislation does not include any repayment provisions.  While RMDs cannot be rolled over (they are not eligible rollover distributions) they are not required for 2020.  IRA distributions, therefore, are technically not RMDs.  This means they should be eligible to be rolled back into IRAs.  It’s likely the IRS will rule on these distributions and for consistency will likely rule they are not RMDs.  Other rollover rules (deposited within 60 days of receipt and only one IRA to IRA rollover per 365 days) would still need adherence.

Deadlines extended to July 15th:

  • 2019 income tax return filing
  • IRA and Roth IRA contributions for 2019
  • Health Savings Account contributions
  • Education Savings Account contributions (i.e. Coverdell)

RMDs waived for 2020:

  • RMDs from IRAs and company plans (e.g. 401(k)) taken by account owners
  • RMDs from IRAs and company plans taken by beneficiaries of original account owners

Undoing RMDs already taken in 2020:

  • must be within 60 days of the distribution
  • there must not have been an IRA to IRA rollover in the 365 days preceding receipt of the 2020 RMD
  • non-spouse beneficiaries cannot undo RMDs already taken

10% early distribution penalty:

  • waived on up to $100,000 of 2020 distributions if related to COVID-19
  • income taxes on distributions not waived but may be spread evenly over three years
  • individuals over the age of 59 ½ (and thus not impacted by the 10% penalty) may still take advantage of the three-year income tax deferral