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Waiver of Minimum Distributions Also Applies to Beneficiaries

Posted on Apr. 10, 2020

The coronavirus relief package’s waiver of required minimum distributions for 2020 appears to also apply to retirement plan beneficiaries, according to some practitioners.

“A question that we’ve gotten a lot is: Does the waiver apply to beneficiaries who are taking post-death distributions?” Carol T. McClarnon of Eversheds Sutherland (US) LLP said April 9 during a webinar hosted by her firm.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act (P.L. 116-136), which President Trump signed into law March 27, waives required minimum distributions (RMDs) for 2020. McClarnon said the statutory language on RMDs isn’t “crystal clear.”

McClarnon said that after parsing through the law, she concluded that it essentially waives the rules under section 401(a)(9), which governs required distributions for qualified retirement plans and individual retirement accounts.

“While we think of RMDs as going to the participant or IRA owner, all of those post-death rules are also included under section 401(a)(9),” McClarnon said, adding that this means the RMD waiver does apply to beneficiaries.

Notice Not Required but Advisable

Another question that has been raised about the RMD provision is whether financial services companies must provide notice to IRA customers about the waiver. “There’s not a clear answer to that but I would certainly suggest that that’s the best practice for IRAs,” McClarnon said. “I think that’s the trend in the industry for IRAs.”

Adam B. Cohen, also of Eversheds, said that like IRAs, there appears to be no mandate for employer-sponsored qualified plans to provide notice about the waiver, but communicating with plan participants is still a good idea. He said there are a few different approaches employers could take, including not adopting the waiver, although he said this would probably be rare.

Cohen said the more likely scenario is that the employer would implement the waiver and either provide distributions unless the employee opts out, or make no distributions unless the employee specifically requests it. He said this was generally how RMD waivers were handled in 2009 under essentially the same provision.

“The IRS was comfortable with that approach. They actually issued two model plan amendments with those two alternatives,” Cohen said.

Recontribution Relief?

McClarnon said another common question is whether an RMD can be recontributed if it was already received in 2020.

Cohen said the RMD can be rolled over back into a plan if it’s within the 60-day indirect rollover period. Spousal beneficiaries can also take advantage of the 60-day window, but non-spousal beneficiaries cannot, he said.

McClarnon and Cohen said it’s possible the IRS would provide relief for individuals who missed the 60-day window, noting that similar relief has been provided in the past.

“We’ll have to wait and see,” Cohen said.

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