The CARES Act and RMDs: FAQs

In the wake of the COVID-19 pandemic, the CARES Act has granted relief to employers sponsoring retirement plans and also to the participants of those plans. We’ve already covered the impact of this critical legislation on loans and distributions for employees. Now, let’s take a look at what the CARES Act does for retirees in the form of waived required minimum distributions (RMDs) in 2020.

First things first: What are Required Minimum Distributions?

Under normal circumstances, individuals over 72 years of age are required by the IRS to take a minimum distribution from their retirement accounts. Normally, it’s not possible for RMDs to roll over into another retirement account; the point of RMDs in general is to make sure individuals do eventually pay income taxes on their retirement savings. For more information, read our blog about required minimum distributions.

What does the CARES Act RMD waiver mean for 2020?

The CARES Act waives the minimum distribution requirement for 2020. Individuals 72 years or older with pre-tax retirement accounts (like a 401(k)) will not be required to take the minimum distributions that would normally be required.

How does the waiver of RMDs help retirees?

By allowing retirees to not take a minimum distribution if they don’t need it, the CARES Act gives individuals the chance to recover from coronavirus-related losses in their retirement accounts. With a downturn in the markets coming alongside the virus, many retirement plan participants have seen an impact to their savings. The good news is if they don’t need to access their funds right now, they don’t have to. That allows those savings to take advantage of the upswing in the markets when they eventually occur.

What types of retirement plans are covered by the CARES Act RMD waiver?

All defined contribution plans can suspend RMDs for 2020. This includes 401(k) plans, individual retirement accounts (IRAs), 403(b) plans, and 457(b) plans.

What if an individual already took their RMD for 2020?

Originally, the CARES Act allowed individuals who have already taken their minimum distribution for 2020 to return their distribution or roll it over to an IRA. That window has since been extended twice, with the most recent guidance from the IRS on June 23 extending the rollover window to cover any RMDs taken since January 1 all the way to August 31, 2020. In other words, any individual of any age who has taken a 2020 RMD now has the option to return it or roll it over if they’d like.

Is there any CARES Act relief for 2019 RMDs?

If an individual turned 70.5 years in 2019 and took their first required minimum distribution by the April 1, 2020 deadline, they will be able to return it or roll it over as long as they do so by August 31, 2020. Effectively, this means individuals who would have taken their first RMD in 2020 now have until April 1, 2021 to do so.

There is no pause button for a retirement plan. Especially in times like this, Fisher Investments 401(k) Solutions is here to work with you and your employees, addressing plan administration, investments, savings, and other topics impacting your business or financial situation. One of the benefits of being an established, independent organization is our ability to continue supporting businesses like yours, even in unique circumstances like this.

Continued Reading on the CARES Act’s impact on 401(k) plans:

Layoffs vs. Furloughs: What's the difference in terms of 401(k) impact?

401(k) Plan Management During COVID-10: FAQs

CARES Act and 401(k) Loans and Distributions FAQs

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