The recently signed Coronavirus Aid, Relief, and Economic Security (CARES) Act included changes for Required Minimum Distributions (RMDs) for the 2020 calendar year. These changes allow, for the 2020 calendar year only, the option to allow participants to rollover their RMDs, or to not receive a distribution at all. Typically, RMDs must be taken as a taxable distribution to the participant. As the sponsor of a retirement plan, you have a few options for how to proceed.
RMDs are typically required to commence no later than April 1st of the calendar year following the later of:
- The calendar year in which a participant either attains age 70 ½ (only if they turned 70 ½ prior to December 31, 2019) or attains age 72
- The calendar year in which the participant retires
First, you will need to decide how you want to process RMDs for 2020. There are four options: paying RMDs normally, paying RMDs only if a participant requests payment, paying RMDs unless a participant elects not to receive the payment, or waiving RMDs entirely for the 2020 calendar year.
Next, review your plan document provisions with your administrator or legal counsel. Depending on the language in the plan document, some of these options could require working with your plan counsel to amend the plan. This amendment would need to be signed prior to the last day of the 2022 plan year.
If you decide to pay RMDs normally and not allow a direct rollover from the plan trust, your participant has the ability to rollover the RMD amount within 60 days of the distribution. This exception applies only for 2020 RMDs. The gross amount of the distribution must be rolled over, so any tax withheld must be made up by the participant. Amounts distributed that would have been RMDs prior to the CARES Act are subject to the normal voluntary withholding rules (10% unless the participant waives withholding or elects a different amount).
As always, we recommend advising your participants to discuss their options and these changes with a tax advisor before making a distribution election.
If you have any questions on these changes, please reach out to your administrator or legal counsel.