On Friday, March 27, 2020, President Trump signed H.R.748 – Coronavirus Aid, Relief, and Economic Security (CARES) Act into law. The act contains in it many temporary provisions to try and help the economy during this 2020 coronavirus pandemic. The most interesting thing about the bill is that, by nature of the waivers, Congress is effectively acknowledging that many IRS requirements are known to be burdens on the people and the economy.
Among the temporary measures, Congress waived required minimum distribution (RMD) requirements for only tax year 2020. The waiver applies to both individual and inherited RMDs. I wrote about how you might want to consider responding in “If You Act Fast, You Can Undo Your 2020 RMD Thanks to the CARES Act.”
In response to that article, I have received several communications from readers. In general, I can tell that seniors are worried about taking advantage of this relief.
One reader worried:
Do you think the government will make us take TWO RMDs in 2021? Would they dare?
Another was concerned about the logistics:
Before converting an amount from Traditional IRA to Roth IRA, I understand that you normally have to distribute your RMD. How does the CARE Act’s waiver of 2020 RMDs affect this requirement? Are you exempt from distributions but then if you do distribute you need to take your RMD? Or can you convert from Traditional IRA to Roth IRA without taking an RMD?
Interestingly, the text that Congress used to waive the 2020 RMD requirements was lifted, edited, and reused from the Worker, Retiree, and Employer Recovery Act of 2008 .
Here are those two bills side by side:
2008
SEC. 201. TEMPORARY WAIVER OF REQUIRED MINIMUM DISTRIBUTION RULES FOR CERTAIN RETIREMENT PLANS AND ACCOUNTS.
(a) IN GENERAL.—Section 401(a)(9) of the Internal Revenue Code of 1986 (relating to required distributions) is amended by adding at the end the following new subparagraph:
(H) TEMPORARY WAIVER OF MINIMUM REQUIRED DISTRIBUTION.—
(i) IN GENERAL.—The requirements of this paragraph shall not apply for calendar year 2009 to—
(I) a defined contribution plan which is described in this subsection or in section 403(a) or 403(b),
(II) a defined contribution plan which is an eligible deferred compensation plan described in section 457(b) but only if such plan is maintained by an employer described in section 457(e)(1)(A), or
(III) an individual retirement plan.
(ii) SPECIAL RULES REGARDING WAIVER PERIOD.— For purposes of this paragraph—
(I) the required beginning date with respect to any individual shall be determined without regard to this subparagraph for purposes of applying this paragraph for calendar years after 2009, and
(II) if clause (ii) of subparagraph (B) applies, the 5-year period described in such clause shall be determined without regard to calendar year 2009.
2020
SEC. 2203. Temporary waiver of required minimum distribution rules for certain retirement plans and accounts.
(a) In general.—Section 401(a)(9) of the Internal Revenue Code of 1986 is amended by adding at the end the following new subparagraph:
(I) TEMPORARY WAIVER OF MINIMUM REQUIRED DISTRIBUTION.—
(i) IN GENERAL.—The requirements of this paragraph shall not apply for calendar year 2020 to—
(I) a defined contribution plan which is described in this subsection or in section 403(a) or 403(b),
(II) a defined contribution plan which is an eligible deferred compensation plan described in section 457(b) but only if such plan is maintained by an employer described in section 457(e)(1)(A), or
(III) an individual retirement plan.
(ii) SPECIAL RULE FOR REQUIRED BEGINNING DATES IN 2020.—Clause (i) shall apply to any distribution which is required to be made in calendar year 2020 by reason of—
(I) a required beginning date occurring in such calendar year, and
(II) such distribution not having been made before January 1, 2020.
(iii) SPECIAL RULES REGARDING WAIVER PERIOD.—For purposes of this paragraph—
(I) the required beginning date with respect to any individual shall be determined without regard to this subparagraph for purposes of applying this paragraph for calendar years after 2020, and
(II) if clause (ii) of subparagraph (B) applies, the 5-year period described in such clause shall be determined without regard to calendar year 2020.
You can see that these two rules are effectively identical.
Back in 2009, the IRS issued a notice to explain the rule more fully . Although most of their prose is dedicated to other matters, they did add the telling requirement that “the financial institution must show the RMD for 2009 as zero (0).”
This requirement shows that they believed the rules did not merely exempt you from having to take an RMD but went as far as to make your RMD $0 for the year. In this way, I have assumed the same interpretation for 2020: That in 2020, everyone’s RMD is once again $0.
Under this interpretation, there is no RMD that you need to satisfy, and you could convert without taking any distribution beforehand because there is no required distribution that you need to satisfy / you have already satisfied your RMD of $0.
Furthermore, they would not make you take two RMDs in 2021 as your 2020 RMD is calculated at $0.
Hopefully, this bit of tax history gives seniors and heirs a bit of comfort in taking advantage of this welcome relief.
Photo by Julia Florczak on Unsplash
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