Deadline to Return RMDs, Take Advantage of Safe Harbor Contribution Relief Looming

The deadline to take advantage of certain relief provided by the IRS to plan participants and plan sponsors in the wake of the COVID-19 pandemic is approaching quickly.  

 

The deadline for workplace retirement plan participants, IRA owners or their beneficiaries who received a required minimum distribution (RMD) this year and want to rollover or repay the distribution to avoid paying taxes on it is Aug. 31. The IRS issued a reminder about the approaching deadline in IR-2020-187 on Aug. 24.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, enacted March 27, includes a provision that waives RMDs during 2020 for retirement plans and IRAs. This waiver includes RMDs for individuals who turned age 70½ in 2019 and took their first RMD in 2020, as well as beneficiaries with inherited accounts. The RMD suspension does not apply to qualified defined benefit plans.
 

If an RMD had already been received during 2020, a participant could roll it over and defer paying taxes, including rolling it back into the plan, but that had to be done within 60 days of receipt.

 

In Notice 2020-51, the IRS extended the 60-day rollover period to Aug. 31, 2020. For example, if a participant in a 401(k) plan received a single-sum distribution in January 2020, part of which was treated as ineligible for rollover because it was considered an RMD, that participant has until Aug. 31 to roll over that part of the distribution.  Therefore, to avoid paying taxes on that distribution, RMDs can be:

Notice 2020-51 also provides that the one rollover per 12-month period limitation and the restriction on rollovers to inherited IRAs don’t apply to this repayment.

 

The CARES Act provisions apply to most retirement plans, including traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k) plans, 403(b) plans, 457(b) plans, profit sharing plans and other defined contribution plans.

 

 

In Notice 2020-52, the IRS provided that plans that adopted an amendment between March 13, 2020, and Aug. 31, 2020, to reduce or suspend safe harbor nonelective contributions will NOT be treated as failing the 30-day notice requirements if the supplemental notice is provided no later than Aug. 31, 2020, and if the plan amendment is adopted no later than the effective date of the reduction or suspension. The relief is not applicable to plans that suspend or reduce the safe harbor matching contributions.

 

Notice 2020-52 also clarified that, since highly compensated employees (HCEs) are not required by law to receive safe harbor contributions, amending a plan to eliminate them will not be considered a suspension of the safe harbor; rather it is a permissible mid-year amendment as defined by Notice 2016-16. Therefore, a new notice and election opportunity must be provided to the affected HCEs.

 

 

The IRS provides additional information on the CARES Act and retirement plans, including FAQs, can be found on its Coronavirus-related relief for retirement plans and IRAs questions and answers page.