RMD extension?

[SSRRS]

Hi, I hope everyone is/ and will be safe and healthy. I see there is talk about extension for the restatements. Is there any chance that the requirement to take the first RMD by  April 1st,  will be extended to a later date? Thank you.

[C. B. Zeller]

This was in today's BL newsletter: https://www2.ascensus.com/news/industry-regulatory-news/2020/03/19/legislation-to-be-introduced-to-suspend-rmds-for-2020-exempt-social-security-income-from-taxation/

[ESOPMomma]

S.3527 is still only proposed.  I don't believe anything has been finalized yet.  Several of my clients already paid out the RMDs that would have been due by 4/1.

[SSRRS]

C.B. Zełler and ESOPMomma, thank you so much. Especially during these times your knowledge and support is really appreciated. Although, the main and amost only important thing right now, is that you and everyone should be and remain healthy.

[ESOP Guy]

If it is 2020 RMDs they are talking about delaying  than you would still have to take the 4/1 RMDs as those are 2019 RMDs.   

[SSRRS]

On Tuesday, March 24, 2020 at 8:20 AM, ESOP Guy said:

If it is 2020 RMDs they are talking about delaying  than you would still have to take the 4/1 RMDs as those are 2019 RMDs.   

ESOP Guy, thank you. I  am just wondering, true the RMD due by 4/1/2020 is for the 2019 year (1st RMD that was allowed to be deferred until 4/1). However, it was allowed to be deferred until now in 2020. Therefore, isn't it  quite reasonable to claim that it was not possible to get it done due to the current situation?

[ESOP Guy]

14 minutes ago, SSRRS said:

ESOP Guy, thank you. I  am just wondering, true the RMD due by 4/1/2020 is for the 2019 year (1st RMD that was allowed to be deferred until 4/1). However, it was allowed to be deferred until now in 2020. Therefore, isn't it  quite reasonable to claim that it was not possible to get it done due to the current situation?

If you can't point to some place in the recently passed laws it covers 2019 RMDs I would not risk it.  

So far we have gotten all the needed 2019 RMDs out by this week.  

[XTitan]

From the release Coronavirus Stimulus bill:

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.

 (b) ELIGIBLE ROLLOVER DISTRIBUTIONS.—Section 402(c)(4) of the Internal Revenue Code of 1986 is amended by striking 2009 each place it appears in the last sentence and inserting 2020.

 (c) EFFECTIVE DATES.—

(1) IN GENERAL.—The amendments made by this section shall apply for calendar years beginning after December 31, 2019.

                (2) PROVISIONS RELATING TO PLAN OR CONTRACT AMENDMENTS.—

(A) IN GENERAL.—If this paragraph applies to any plan or contract amendment—

(i) such plan or contract shall not fail to be treated as being operated in accordance with the terms of the plan during the period described in subparagraph (B)(ii) solely because the plan operates in accordance with this section, and

(ii) except as provided by the Secretary of the Treasury (or the Secretary’s

delegate), such plan or contract shall not fail to meet the requirements of section 411(d)(6) of the Internal Revenue Code of  1986 and section 204(g) of the Employee Retirement Income Security Act of 1974 by reason of such amendment.

 (B) AMENDMENTS TO WHICH PARAGRAPH APPLIES.—

(i) IN GENERAL.—This paragraph shall apply to any amendment to any plan  or annuity contract which—

(I) is made pursuant to the amendments made by this section, and

(II) is made on or before the last  day of the first plan year beginning on or after January 1, 2022.

In the case of a governmental plan, subclause (II) shall be applied by substituting 2024 for 2022.

 (ii) CONDITIONS.—This paragraph shall not apply to any amendment unless during the period beginning on the effective date of the amendment and ending on December 31, 2020, the plan or contract is operated as if such plan or contract amendment were in effect.

[SSRRS]

XTitan, thank you very much. Does this mean that 1st RMD that was defered to 4 1 2020 is included in the temporary waiver of RMD (the language is a bit confusing)?

[C. B. Zeller]

The language that XTitan posted is from a bill that has not been signed into law yet, so still subject to change. Don't rely on it.

That said, the bill as it stands now only contains an RMD waiver for DC plans and IRAs.

[SSRRS]

13 minutes ago, C. B. Zeller said:

The language that XTitan posted is from a bill that has not been signed into law yet, so still subject to change. Don't rely on it.

That said, the bill as it stands now only contains an RMD waiver for DC plans and IRAs.

Thank you!

[Peter Gulia]

Last year's tax legislation too had some minimum-distribution changes that apply only for an individual-account (defined-contribution) retirement plan.  Do the legislative drafters assume a defined-benefit plan lacks non-annuity payments?

[Mike Preston]

6 hours ago, Peter Gulia said:

Last year's tax legislation too had some minimum-distribution changes that apply only for an individual-account (defined-contribution) retirement plan.  Do the legislative drafters assume a defined-benefit plan lacks non-annuity payments?

In fact, except in limited cases, a DB plan does lack non-annuity payments.  It is only when a participant receives a distribution of their entire interest is a non-annuity payment contemplated.

[Peter Gulia]

But a cash-balance defined-benefit plan might provide a single-sum distribution?

[Mike Preston]

3 hours ago, Peter Gulia said:

But a cash-balance defined-benefit plan might provide a single-sum distribution?

No more or less than any defined benefit plan.

[figure 8]

What if the DB plan language says something like this:

"The RMD, if the participant takes a single sum distribution, is determined as if the RMD was for an individual account plan."

Well, for 2020, such an individual account plan would require no RMD. Couldn't such interpretation possibly exempt DB plans from the RMD for 2020, but only for participants who want to take (and are allowed by their plan) a single sum distribution? On the one hand, seems like quite a stretch, because that doesn't seem to be the spirit of the law (I'm assuming); on the other hand, you're following the literal language of the plan document and the law, aren't you?

[Mike Preston]

To do what you describe would directly contradict 1.401a9-6 which talks about doing something close to what you describe but requires a double up, if applicable.  Note: REQUIRES.

[figure 8]

Mike, thanks for the reply. Are you suggesting that if one were to take my theoretical approach, then they’d have to double up next year? Or are you just saying my whole idea is contradictory because a DB RMD is required no matter what, since the cares act doesn’t specifically say DB plans are exempt?

[Mike Preston]

Can't follow what you are saying, precisely, but the best thing for you to do is to read 1.401a9-6 and pay close attention to when the DC RMD calculation can be used in a DB plan.  CARES does absolutely nothing for DB plans.

[figure 8]

(d) Single sum distributions. In the case of a single sum distribution of an employee's entire accrued benefit during a distribution calendar year, the amount that is the required minimum distribution for the distribution calendar year (and thus not eligible for rollover under section 402(c)) is determined using either the rule in paragraph (d)(1) or the rule in paragraph (d)(2) of this A-1.

(1) The portion of the single sum distribution that is a required minimum distribution is determined by treating the single sum distribution as a distribution from an individual account plan and treating the amount of the single sum distribution as the employee's account balance as of the end of the relevant valuation calendar year. If the single sum distribution is being made in the calendar year containing the required beginning date and the required minimum distribution for the employee's first distribution calendar year has not been distributed, the portion of the single sum distribution that represents the required minimum distribution for the employee's first and second distribution calendar years is not eligible for rollover.

The above is from 401a9-6 and the bolded emphasis is mine.

The portion that is an RMD is determined by treating the distribution as if from an individual account plan. It then follows that if we treat the distribution as if from an individual account plan, the law (thanks to the cares act) says that the RMD requirements do not apply if the distribution year is 2020.

Just wondering if this is a loophole due to inadequate explanatory language in the cares act... I know it is a stretch, but just curious if anyone else agreed there could at least be gray area.

[Peter Gulia]

Yes, it is section 2203.

[RatherBeGolfing]

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.

(b) ELIGIBLE ROLLOVER DISTRIBUTIONS.—Section 402(c)(4) of the Internal Revenue Code of 1986 is amended by striking ‘‘2009’’ each place it appears in the last sentence and inserting ‘‘2020’’.

(c) EFFECTIVE DATES.—

(1) IN GENERAL.—The amendments made by this section shall apply for calendar years beginning after December 31, 2019.

(2) PROVISIONS RELATING TO PLAN OR CONTRACT AMENDMENTS.—

(A) IN GENERAL.—If this paragraph applies to any plan or contract amendment—

(i) such plan or contract shall not fail to be treated as being operated in accordance with the terms of the plan during the period described in subparagraph (B)(ii) solely because the plan operates in accordance with this section, and

(ii) except as provided by the Secretary of the Treasury (or the Secretary’s delegate), such plan or contract shall not fail to meet the requirements of section 411(d)(6) of the Internal Revenue Code of 1986 and section 204(g) of the Employee Retirement Income Security Act of 1974 by reason of such amendment.

(B) AMENDMENTS TO WHICH PARAGRAPH APPLIES.—

(i) IN GENERAL.—This paragraph shall apply to any amendment to any plan or annuity contract which—

(I) is made pursuant to the amendments made by this section, and

(II) is made on or before the last day of the first plan year beginning on or after January 1, 2022. In the case of a governmental plan, subclause (II) shall be applied by substituting ‘‘2024’’ for ‘‘2022’’.

(ii) CONDITIONS.—This paragraph shall not apply to any amendment unless during the period beginning on the effective date of the amendment and ending on December 31, 2020, the plan or contract is operated as if such plan or contract amendment were in effect.