Reporting Relief Provided in Light of SECURE Act’s RMD Age Change
On January 24, 2020, the IRS issued Notice 2020-6, guidance that addresses required minimum distribution (RMD) reporting by IRA custodians, trustees, and issuers. The Setting Every Community Up for Retirement Enhancement (SECURE) Act, contained within the broader Further Consolidated Appropriations Act (FCAA), 2020, altered the age when IRA owners must begin taking mandatory annual distributions, or RMDs. Under a provision of the SECURE Act, those who reach age 70½ in 2020 or a later year can delay beginning RMDs until age 72. Those who reached age 70½ in 2019 or earlier years must continue taking annual RMDs.
IRA custodians, trustees, and issuers are required to inform IRA owners by January 31 if an RMD must be taken by them for that year. Because of the timing of the FCAA’s enactment in December of 2019, IRA processing and reporting systems may still be programmed to inform account owners turning 70½ in 2020 that an RMD is required to be taken for this year. This information would be incorrect, as these individuals are not required to begin receiving RMDs from their IRAs until they reach age 72. This would constitute a reporting failure by the IRA custodian, trustee, or issuer.
Notice 2020-6 informs these financial organizations that they will be granted relief for such reporting errors if, by April 15, 2020, they inform affected IRA owners that no RMD is due for 2020. Furthermore, when IRA custodians, trustees, and issuers file the 2019 Form 5498, IRA Contribution Information, for those individuals turning age 70½ in 2020 (filing deadline June 1, 2020), they should not check Box 11, Check if RMD for 2020, or make entries in Boxes 12a, RMD date, or 12b, RMD amount. Notice 2020-6 does not grant relief for failing to meet this reporting requirement.
In addition, “to reduce misunderstanding among IRA owners,” the IRS in Notice 2020-6 encourages financial institutions to remind those IRA owners who turned 70½ in 2019 (and do not fall under the new age 72 rule) that the RMD for 2019 must be taken—if it has not been taken already—by April 1, 2020.
The IRS further notes that it is “considering what additional guidance should be provided … including guidance for plan administrators, payors and distributees if a distribution to a plan participant or IRA owner who will attain age 70½ in 2020 was treated as an RMD.”
Not addressed in this guidance is whether an IRA owner (or plan participant) who receives such a distribution would be granted an extended period of time—beyond 60 days—to complete a rollover of the distributed amount back into a tax-qualified savings arrangement.
Also not addressed is the IRA-to-IRA rollover limitation, which restricts an individual to a single IRA distribution within any 12-month period that is eligible for rollover. For example, if an IRA owner receives multiple distributions in 2020 in the mistaken belief that they must do so to satisfy RMD requirements, could they be granted an exemption from the one-per-12-month rollover restriction in order to return these multiple distributions to a tax-qualified savings arrangement?
These questions are among those raised by enactment of the SECURE Act and related legislation. Watch ascensus.com News for updates and further analysis as it becomes available.
