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Practitioners Cheer IRS Guidance on Minimum Distribution Waiver

The IRS served up a list of answers — and some perks — for taxpayers in its latest guidance on the coronavirus relief package provision waiving required minimum distributions (RMDs) for 2020.

Notice 2020–51, 2020-29 IRB 1, released June 23, provides that a taxpayer who received an RMD at the start of this year can roll over that distribution into another eligible retirement plan. It also extends the deadline for making those rollovers to the later of 60 days after a distribution is received, or August 31.

“Without this relief, some taxpayers could have been disadvantaged for acting promptly in taking their RMDs,” Carol T. McClarnon of Eversheds Sutherland (US) LLP told Tax Notes.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136) allows taxpayers to waive RMDs in 2020 from a defined contribution retirement plan.

Christopher J. Denicolo of Gassman, Crotty & Denicolo PA explained that what the IRS seems to have done is “try to be taxpayer-friendly and not hurt the folks who have taken RMDs earlier in the year.”

“The people who were trying to do the right thing and saying, ‘You know, I want to get my RMDs done, let’s take them in January’ — they were kind of getting the short end of the stick when the CARES Act came out,” Denicolo said.

When the CARES Act was enacted in mid-March, it allowed taxpayers up to 60 days to make eligible rollovers, but taxpayers who took RMDs in January or early February appeared to be outside the time window for that benefit, Denicolo explained. The new notice, however, makes clear that the IRS intends to apply that benefit to taxpayers who received distributions as early as the start of the year.

That rollover deadline extension to the beginning of the year will be welcomed by IRA sponsors and retirement plan administrators because it gives them a clear sense of the time frame for the waiver of the 60-day rollover period, according to McClarnon. “The provider or administrator is relieved from having to examine each waiver request on a case-by-case basis to determine whether it can fit into one of the broader general waiver categories,” she explained.

The IRS also lifted the one-rollover-per-year limit as well as the restriction on rollovers for inherited IRAs. The notice further includes sample plan amendment language for employers that give plan participants and beneficiaries whose RMDs are waived a choice over whether to receive the waived RMDs.

The notice should be well-received by practitioners, according to Elizabeth Thomas Dold of Groom Law Group, who noted that it offers guidance on several key areas that had concerned practitioners.

In addition to the extended rollover period, the notice provides relief for reporting and withholding mistakes in RMDs made in 2020 as a result of the Setting Every Community Up for Retirement Enhancement Act, and provides answers to over a dozen common questions.

“Well done, IRS!” Dold added.

Written by Jonathan Curry

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