CARES Act Changes Required Minimum Distribution Rules for 2020

On March 27, the president signed into law the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) as part of the $2 trillion stimulus package intended to stabilize the economy during the devastating coronavirus pandemic. The CARES Act provides for a temporary waiver of required minimum distributions (RMDs) that would otherwise be payable in 2020 for IRC Section 403(a) and 403(b) defined contribution plans, governmental IRC Section 457(b) defined contribution plans, and individual retirement plans.

In other words, for retirement accounts subject to RMDs, the law suspended these mandatory withdrawals for 2020. An RMD is the amount of money that must be withdrawn annually from these types of accounts. The suspension of the RMDs applies to both first-time distributions that would have been due by April 1, 2020, and annual distributions.

This law affects income qualifications for seniors, points out tax credit expert Karen Graham. “Senior applicants or residents should certify whether they have or will take the RMDs. If they say no, then no further action is required,” says Graham.

The CARES Act is a relief bill, and by suspending 2020 RMDs, the government is giving up short-term tax revenue to provide relief to retirees. It’s important to note that this waiver of RMDs for 2020 isn’t limited to those who are affected by COVID-19. The waiver applies to:

• Any account owner who’s 72 or older in 2020;
• Any account owner who turned 70½ in 2019, didn’t take her initial RMDs in 2019, and planned to take her delayed RMDs by April 1, 2020; and
• All beneficiaries of inherited IRAs for decedents who died before 2020.

The suspension of RMDs in the law gives those retirement accounts more time to recover from the stock market downturn caused by COVID-19’s effect on the economy, and seniors or retirees who can afford to leave them alone get the tax break of not being taxed on mandatory withdrawals.