RMD Relief and Coronavirus-Related Distributions Are Not Extended to 2021
By Lisa Walker, CISP, CHSP
Last year at this time, the coronavirus (COVID-19) pandemic had taken hold of the nation. Most Americans were thrown off balance, and, as the pandemic went on, many suffered financially. To help aid businesses and workers—and to assist the U.S. healthcare system in dealing with the COVID-19 pandemic—the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020. Amongst its multiple provisions was specific relief related to retirement savings arrangements. Much of this relief has ended and, at this time, is not being extended.
Chances are, you and your staff may be fielding questions from clients about the continuation of this relief, especially because COVID-19 restrictions are still in place at varying levels across the country, causing continued financial hardship for some. The recently passed stimulus package, American Rescue Plan Act of 2021, and the IRS’ recent announcement and notice extending the due dates for filing a federal tax return and making IRA and health or education savings account contributions may also be fueling questions. Although most of the 2020 relief has ended, there are some remnants of that relief that may still be applicable.
2020 RMD Waiver
Waiver Has Ended…
One key item of retirement savings relief provided by the CARES Act was the 2020 required minimum distribution (RMD) waiver. As a result, IRA owners, retirement plan participants, and beneficiaries were not required to take distributions in 2020. This RMD waiver also applied to individuals who turned 70½ in 2019 and would have been required to take their first RMD by April 1, 2020.
Individuals who did receive distributions intended as RMDs were allowed to repay, or roll over, the distributed amount by August 31, 2020. After that date, regular rollover rules apply, and the return of any distributed amounts—former 2020 RMDs or otherwise—had to be returned to an IRA or other eligible account within 60 days of the distribution.
At this time, there is no guidance extending this waiver for 2021 RMDs. IRA owners and plan participants who are in RMD status must satisfy their 2021 RMDs by the deadline. And beneficiaries who are required to take a distribution for 2021 from an inherited IRA or plan must do so by December 31, 2021.
… But Five-Year Rule Still Affected
For purposes of counting the five-year period for the five-year rule beneficiary distribution option, the 2020 RMD waiver essentially added one year to the remaining period. For example, if an IRA owner had died in 2018 and his beneficiary chose to distribute the inherited IRA according to the five-year rule, the year 2020 would not be counted, effectively giving the beneficiary until the end of 2024, rather than 2023, to deplete the inherited IRA.
Coronavirus-Related Distributions
CRDs Have Ended…
Another key item of retirement savings relief provided by the CARES Act was to allow qualified individuals to withdraw up to $100,000 from their eligible retirement plans (including IRAs) on or after January 1, 2020, and before December 31, 2020, without incurring a 10 percent early distribution penalty tax.
… But They Can Still Be Repaid
These coronavirus-related distributions (CRDs) can be repaid, or recontributed, during a three-year period that starts the day after the distribution was received. One or more repayments may be made during the three-year repayment period, but the total amount repaid cannot exceed the amount distributed. CRD amounts will be taxed ratably over the three-year period, unless the individual elects otherwise.
Individuals can recontribute CRD amounts to a qualified retirement plan (such as a 401(k) plan), a 403(b) plan, a governmental 457(b) plan, or an eligible IRA. Note that CRD amounts that are not eligible for rollover may not be repaid (for example, amounts distributed to a nonspouse beneficiary cannot be repaid to an IRA or retirement plan). CRDs that are recontributed within the three-year period will be treated as if they met the general 60-day rollover requirement for repayment eligibility.
Your organization should report CRDs on IRS Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. For IRA owners and plan participants (other than beneficiaries) receiving CRDs who are otherwise subject to the 10 percent early distribution penalty tax, you may enter code 2, Early distribution, exception applies, in Box 7. Alternatively, you may use code 1, Early distribution, no known exception.
Note that a qualified individual can claim exemption from the 10 percent early distribution penalty tax on his individual income tax return if he qualifies for a CRD, regardless of how Form 1099-R is coded. A qualified individual will report CRDs as distributions and as repayments—if made—on new IRS Form 8915-E, Qualified 2020 Disaster Retirement Plan Distributions and Repayments.
It is logical to expect that CRD repayment amounts will be reported on IRS Form 5498, IRA Contribution Information, similarly to how repayments of disaster distributions are reported. Such repayment amounts have been reported in Box 14a, Repayments, with “DD” (disaster distribution) in Box 14b, Code. At the time of this writing, however, no official IRS guidance for reporting CRD repayments has been issued.
