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IRS expands guidance on RMD’s and early retirement distributions

Natalie Tocco

June 24, 2020

IRS expands guidance on waiver of 2020 required minimum distributions and COVID-19 related distributions and loans from retirement plans.

2020 Required Minimum Distributions

The CARES Act eliminated the requirement to take a required minimum distribution (RMD) from certain retirement plans in 2020. IRS Notice 2020-51 provides additional guidance including:

  • Providing relief to allow taxpayers who receive certain distributions to roll them into an eligible retirement plan
  • Extension of 60-day deadline for rollover of certain distributions to August 31, 2020
  • Permits repayments of RMDs previously distributed from an IRA

COVID Related Distributions and Loans from Retirement Plans

The CARES Act waived the 10% penalty on early withdrawals from qualified retirement plans taken in 2020 for coronavirus-related distributions up to $100,000.

IRS Notice 2020-50 expands the scope of qualified withdrawals to include:

  • Spouses and dependents who have suffered financial hardship due to quarantine, being furloughed or laid off, or had hours/pay cut due to COVID-19.
  • Individuals having a reduction in pay (or self-employment income) or having a job offer rescinded or delayed start date due to COVID-19.
  • Closing or reducing hours of a business owned or operated by the individual’s spouse or a member of the individual’s household due to COVID-19.

For purposes of the above factor, a member of an individual’s household is someone who shares the individual’s principal residence.

Any income attributable to a qualified withdrawal is still subject to tax over a three-year period, and taxpayers may re-contribute the withdrawn amounts without regard to annual limits on contributions if made within three years.

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