New Rules for Required Minimum Distributions

There have been several changes to Required Minimum Distribution (RMD) rules this past year. When the Setting Every Community Up for Retirement Enhancement (SECURE) Act passed last December, it changed the age limit for RMDs from age 70 ½ to age 72. When The Coronavirus Aid, Relief and Economic Security (CARES) Act passed this past March, it suspended RMDs for 2020 from certain plans and provided special tax treatment for “coronavirus-related distributions” from a retirement plan. In addition, the IRS recently expanded some eligibility rules for the above changes, including clarifications on paying back RMDs that were already taken in 2020. If any of these situations apply to you, you must act now to get the best tax treatment. Additional details for all three of these are discussed below.

Timing Change

The SECURE Act made several changes to RMD rules.

  1. The Act increased the starting age from 70 ½ to 72. This applies to anyone who turned 70 ½ after December 31, 2019.
  2. If an owner of a defined contribution plan and/or individual retirement account (IRA) dies after December 31, 2019, their beneficiary(ies) must take out the entire account balance within ten years. The distribution can come out at any time during the 10-year period, but the entire amount must be distributed within this timeframe.
    • There is an exception to this rule for the surviving spouse, a child under the age of majority (generally age 18 but varies by state), disabled or chronically ill individuals or a person less than ten-year younger than the owner.


The CARES Act waived the RMD requirement for 2020 allowing retirement accounts a chance to rebound after the large market decline earlier this year. This applies to defined-contribution plans, including 401(k) or 403(b) plans and Individual Retirement Accounts (IRA). If you already took your RMDs this year and did not need them, the IRS has provided guidance on returning the funds to your retirement account. There are two ways that you can return the money but both options require you to act quickly.

  1. 60-day Window. If you took the distribution within the past 60 days, you can simply roll the money back into the account either via check or electronic transfer. Make sure to tell the custodian that this is a qualified 60-day rollover. Normally, you can only do one rollover within a 12-month period; however, this repayment is not subject to the one rollover per 12-month period limitation.
  2. Extension of the 60-day window. If you missed the 60-day rollover window, the new guidance from the IRS allows you to roll the money back into your account. Just like the 60-day window treatment, funds can be returned via check or electronic transfer. The RMD will not be taxable to you in 2020 if the transfer is completed by August 31, 2020. Any withholding from your RMD must also be paid back, otherwise, you will be taxed on that portion and will not be able to get this withholding back until you file your 2020 tax return early next year.

Coronavirus-Related Distributions

Under the CARES Act, eligible individuals can take up to $100,000 from a qualified retirement plan (401k plan, 403(b) plan and IRAs). The distribution will be exempt from the 10% penalty for early withdrawal and allows the early distribution to be included in income ratably over three years. The Act also allows you to recontribute the funds into any eligible retirement plan within the three-year period and avoid taxes on this amount altogether. If you pay the full amount back in year three, you will need to amend your tax returns for years 1 and 2 to get the tax dollars refunded (since 1/3 of the amount distributed is treated as taxable income in 2020, 2021 and 2022 unless contributed back).

The IRS recently expanded the definition of an eligible individual. An eligible individual is someone:

  • who is diagnosed with COVID-19;
  • whose spouse or dependent is diagnosed with COVID-19;
  • who experienced adverse financial consequence due to being quarantined, furloughed, laid off, reduced work hours, unable to work due to lack of childcare from COVID-19 (this can be for the individual, spouse or member of the individual’s household); or
  • who had a job offer rescinded or start date for a job delayed due to COVID-19.

Our BMF Advisors stand ready to answer your questions on these RMD rules and discuss any potential impact this may have on your finances or tax liabilities.

Visit our COVID-19 Resource Center for additional information and resources for you and your business.

About the Authors

Cindy H. Mitchell
Cindy H. Mitchell


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