Required Minimum Distributions for 2020

IRS provides welcome relief on required minimum distributions for 2020. Since we wrote that the stimulus law enacted on March 27 waived RMDs from IRAs and workplace retirement plans for 2020, we have received many questions. The most common query involves IRA and plan distributions already taken out in 2020.

People have until August 31 to return January through June payouts to the IRA or plan, such as a 401 (k) and treat the contributed funds as a tax-free rollover, IRS says in new guidance. It also waives the one-rollover-every-12-months trap for IRA owners who took RMD monthly installments in 2020. And rollovers of RMDs from inherited IRAs are permitted for this purpose.

More people qualify for a COVID-19 retirement-account-related easing. The 10% penalty on pre-age 59 ½ payouts from retirement accounts is waived on up to $100,000 of coronavirus-related distributions in 2020 from 401(k)s, 403(b)s and IRAs. Federal income tax on these distributions can be paid over three years, beginning twitch the payout year, unless the individual elects to pay the tax all at once. Additionally, amounts contributed to the account within the three-year time will not be taxable. They will be treated as rollovers, and any income tax that was paid will not be taxable. They will be treated as rollovers, and any income tax that was paid on the distribution can be recovered by filing an amended return on Form 1040X.

New IRS rules expand the definition of a corona-virus-related distribution. It covers payouts to account owners if they or their spouses were laid off or furloughed, saw work hours cut or less pay, had a job offer rescinded or work start date delayed, or had child care issues, all because of COVID-19. Also qualifying are distributions to people who own or operate a business that closed or reduced hours in the pandemic.