Regulatory and Legislative

IRS Issues More Guidance on 2020 RMD Waiver

In issuing Notice 2020-51 on June 23, 2020, the IRS provided much-needed additional guidance—and some welcome relief—pertaining to the 2020 suspension of required minimum distributions (RMDs). The Coronavirus Aid, Relief, and Economic Security (CARES) Act of 2020, signed into law by President Trump on March 27, 2020, suspended for the 2020 tax year the requirement that these distributions be taken from employer-sponsored defined contribution retirement plans and IRAs.

Notice 2020-51 notes the similarity to a previous RMD waiver granted in 2009 by the Worker, Retiree, and Employer Recovery Act (WRERA), and the subsequent guidance and transition relief provided then in IRS Notice 2009-82. This was in response to the economic downturn at the onset of the Great Recession.

RMDs generally must be taken each year beginning when plan participants or IRA owners reach age 72 (formerly age 70½) or—for some plan participants who work beyond age 72—retire. In general, IRA and retirement plan beneficiaries are also subject to RMDs.

The timing of the 2020 RMD waiver was problematic for those who had already taken distributions in 2020 that they believed were required; especially multiple periodic distributions, or beneficiary distributions. In several tangible ways, Notice 2020-51 has come to their rescue.


Notice 2020-51 details are summarized below.

Direct Rollover, Notice, and Withholding Relief

Plan administrators who treated a 2020 distribution as an RMD that was not eligible for rollover—and thus did not permit a direct rollover, provide a 402(f) notice, or withhold at a 20% rate—will not be considered to have failed to meet these requirements.

RMD Amounts Eligible for Rollover

Eligible for rollover under this guidance are amounts that—but for the waiver—would have been 2020 RMDs (including an amount to be taken by an April 1, 2021, required beginning date (RBD)), and amounts that are part of a series of periodic payments made at least annually over life expectancy, or over a period of 10 or more years. 

Retirement Plan Rollover Deadline Extended to August 31, 2020

Notice 2020-51 permits the rollover of waived retirement plan RMDs—amounts withdrawn or distributed in 2020 in the belief they were required—through August 31, 2020, without regard to the normal 60-day limitation. The rollover is limited to the amount of the waived 2020 RMD. 

IRA Repayment Deadline Extended to August 31, 2020

Notice 2020-51 permits the repayment of waived IRA RMDs—amounts previously withdrawn or distributed in 2020 in the belief they were required—through August 31, 2020. This can be done without regard to the normal 60-day limitation for IRA-to-rollovers. “Repayments” that are made by August 31, 2020, will not be considered to violate the one-rollover-per-12-months limitation or the restriction on rollovers for nonspouse beneficiaries. It is not well-defined at this time what reporting distinctions there may be between the reporting of rollovers vs repayments. It appears that “repayments” (vs rollovers) must be to the distributing IRA. Distributions less than 60 days before August 31, 2020, would be eligible for rollover if all rollover requirements were met.

Defined Contribution Plan Sample Amendment

Notice 2020-51 provides a sample defined contribution plan amendment that provides plan participants and beneficiaries the choice of receiving or not receiving amounts that represent waived RMDs, with no impact on other distribution provisions. The amendment follows the design of pre-approved document plans that use a basic plan document and an adoption agreement.

IRA Document Amending

IRA documents are not required to be amended for the CARES Act 2020 RMD waiver. But to ensure clients receive up-to-date information, IRA disclosure statements may need to be revised to reflect the waiver.

QRP Beneficiary Payout Option Amending

For qualified retirement plans that permit beneficiaries to choose between life expectancy payments and a 5-year payout (when a participant’s death occurs before the RBD), the election deadline for a 2019 death would be December 31, 2020. This election deadline can be extended to December 31, 2021, by a plan amendment. (Most nonspouse beneficiaries may not elect life expectancy payments if a participant dies in 2020 or a later year.)

Nonspouse QRP Beneficiary Rollover to Elect Life Expectancy Payments

In general, a nonspouse beneficiary must directly roll over an inherited qualified retirement plan balance to an IRA by the end of the year following the year of death to be eligible to elect life expectancy payments if a plan mandates a 5-year payout. For a participant who died in 2019, this deadline is now 2021, not 2020. (Most nonspouse beneficiaries may not elect life expectancy payments if a participant dies in 2020 or a later year.)

RMD Suspension and the Required Beginning Date

The RBD for an individual to begin withdrawing RMDs is generally April 1 of the year following the year she reaches age 72 (formerly 70 ½), or—if delayed beyond this age by continuing employment—the year of retirement. The 2020 RMD waiver does not affect an individual’s RBD.

2020 Initial RMD With April 1, 2021, RBD, is Waived

A retirement plan participant whose first RMD year is 2020 (the participant reached age 70½ in 2019 or earlier, participates in a plan that allows a delayed RBD, and retires in 2020) has an RBD of April 1, 2021, but is not required to withdraw this amount in 2021. The 2021 RMD, however, must be withdrawn by December 31, 2021. Amounts that are withdrawn in 2021 will be applied to satisfy this 2021 RMD, and any amount in excess of this 2021 RMD will be eligible for rollover.

No Other Deadline Extensions or Rollover Modifications

No deadlines are extended other than the deadlines to 1) complete certain rollovers or repayments (August 31, 2020), 2) elect life expectancy payments or the 5-year rule if a participant died in 2019 (December 31, 2021, if a retirement plan offers both options), and 3) allow a nonspouse beneficiary of a participant who died in 2019 to complete a direct rollover to an IRA and elect life expectancy payments (December 31, 2021).

Spousal Consent and Suspension of 2020 RMDs

If an individual is receiving certain annuity payments (e.g., qualified joint and survivor annuity) from a qualified plan, the suspension for 2020 and resumption in 2021 would not require spousal consent unless the plan provides that there is a new annuity start date.

Rollover to Distributing Plan

Amounts withdrawn from a retirement plan that are eligible for rollover by virtue of the RMD waiver may be rolled back into the same plan if that plan permits rollovers and if other rollover conditions are met.

RMD Waiver and Withholding

Payors do not have the option to treat a 2020 RMD amount paid from a retirement plan as subject to 20% withholding. But if an amount exceeding the calculated 2020 RMD is distributed, and would otherwise be eligible for rollover, it is subject to 20% withholding.

If the individual is receiving monthly distributions that exceed RMD amounts, as part of a series of payments made over a period of 10 or more years, the entire amount of each distribution is subject to the periodic payment optional withholding rules (IRC Sec. 3405(a).

Substantially Equal Periodic Payments and the RMD Waiver 

Substantially equal periodic payments—exempt from the 10% early distribution penalty tax—are not affected by the RMD waiver. Required payments under such a schedule—even if based on the RMD calculation method—must be made if required in 2020, or all prior payments received under this schedule are subject to the 10% early distribution penalty tax.

Financial Organizations Must Notify IRA Owners

Financial organizations must notify their IRA clients that no RMD is due for 2020. One method of notification is to provide IRA owners with a copy of the 2019 Form 5498, IRA Contribution Information, that was filed with the IRS, indicating that there is no RMD required for 2020 (the extended IRS filing deadline for the 2019 Form 5498 is August 31, 2020).

Defined Benefit Plans and the 2020 RMD Waiver

The waiver of 2020 RMDs does not apply to defined benefit pension plans, even if such plans use a formula that calculates the RMD as if it is a distribution from an individual account plan.