How did the CARES Act (The Coronavirus Aid, Relief, and Economic Security Act [the Act], passed by Congress and signed into law on March 27, 2020), impact Required Minimum Distributions (RMDs) from IRA’s, 401(k), 403(b), 457(b) and other defined contribution accounts?
by Jack Campbell, ARCRA Treasurer
The nearly 900-page law provided relief to individuals and businesses in various forms but there were some provisions focused on retirees and specifically on RMDs. Recall that we provided some guidance on RMDs in December 2019 and January 2020 for tax planning purposes as retirees hit the age thresholds where distributions are required. However, due to the unprecedented impact on the economy of the shutdown of large segments of businesses, and related stay-at-home orders due to the COVID-19 virus, specific relief was granted by the Act regarding RMDs in 2020. Tax and legal professionals are offering guidance based on the Act but detailed rules from the IRS and Federal government may still be forthcoming. Here is what they are saying now in terms of tax planning in 2020:-
What is the 2020 RMD relief?
Defined contribution plans like those noted in the headline can waive/suspend required minimum distributions in 2020 with no penalties imposed. The waiver is for everyone, not just those who may be directly affected by COVID-19. This provides flexibility in 2020 due to financial strains caused by the pandemic.
- For 2019 RMDs. If a person turned 70 ½ in 2019, they had to take their RMD either in 2019 or before April 1, 2020. If they took the distribution in 2019, they can’t undo that action and it is taxable in 2019. If they waited until 2020 up to April 1, there is an existing 60-day rollover provision that can be employed to allow all or some of a distribution already taken to be rolled back into an IRA or other qualified plan. However, the IRS recently issued Notice 2020-23 which extended the 60-day rule until July 15, 2020 for anyone who took a now unwanted RMD. This applies for those who received a payment between Feb 1 - May 15, 2020. So, if their 2019 distribution was taken on March 15, 2020, they have until July 15, 2020 to execute a rollover. Otherwise, it will be taxable in 2020. Note that there is only one 60-day rollover to an IRA allowed in a 12-month period. Also, although permitted by law, some qualified savings plans do not allow rollovers to non-IRA plans.
- For 2020 RMDs. If a person has not yet taken their 2020 RMD, they can suspend taking it in 2020 with no penalty and avoid the taxes in 2020. Statistics say that about 20% of people who take a distribution take the minimum. That means that about 80% take more than the minimum, suggesting that they need it for their livelihood or a large purchase, down payment, etc. If someone takes their 2020 distribution in any amount without rolling it over, it will be taxable income. However, if they can suspend some or all of the RMD in 2020, they can avoid taxation and penalties in 2020 and allow more time for their portfolio to recover from the current market downturn. Keep in mind that the age to start RMDs was changed to 72 starting in 2020 so if a person did not turn 72 in 2020, there is no RMD requirement until the year they turn 72. For those that turned 70½ in 2019 or prior, they can suspend all or a part of their RMD in 2020. The rollover extension mentioned earlier applies to 2020 RMDs as well.
- If you received an RMD from a non-IRA employer plan in 2020 (prior to the CARES act), you should check with your plan administrator to see if the plan will allow you to return these funds into the plan. If not, you may be able to rollover to an IRA within 60 days. Rollovers can get complicated so the IRS link below may be helpful.
What about those who have elected to take distributions automatically?
If you want to cease or change distributions already underway, you will have to contact your administrator or custodian to review what contractual arrangements exist to make changes.
Finally, there are more provisions that involve inherited IRAs and the application of the Act on those as well. Please contact your financial or tax advisors to get the best advice that fits your particular situation before you take any action.
Read more the CARES Act and RMD here.
Review Your Athene Account
Many Red Cross retirees are receiving all or a portion of their retirement benefit from Athene. It just makes good sense to log on to your account at https://www.lifeatworkportal.com/Athene from time to time to review your information and familiarize yourself with the benefit info available to you. On the site, you can easily:
- Review Your Annuity Info
- Request annuity verification
- Review your communication preferences
- Review/update your tax withholding preferences
- Review/update your direct deposit preferences
Recently, Athene CEO Grant Kvalheim wrote to all annuitants conveying, in part: “At Athene, your financial security is our top priority, and we are here to serve you whatever the coming weeks and months may bring. We maintain "A" ratings from A.M. Best, Standard & Poor's and Fitch Rating Services, and ended last year in the strongest financial position in our history.” The full letter is posted on your Athene accounts home page.
Some retirees are receiving all or a portion of their retirement benefit from John Hancock which does not offer online access to annuity accounts. Call a Client Services Representative at 800-624-5155 for any issues or requests related to your account.
A small number of retirees who began drawing benefits before June 1989 are receiving all or a portion of their benefit from Aetna. If you are in this category and would be willing to help us understand how annuitants can gain access to their account and receive customer service, get in touch at Admin@arcretireeassoc.org and we’ll share info with our members.