IRS grants additional relief to retirement savers required to take plan distributions
As Americans deal with financial fallout related to the coronavirus pandemic, the IRS released new guidance hoping to give relief to some retirement savers.
The CARES Act allowed individuals to skip taking their required minimum distribution in 2020, but some people may have already taken it prior to the onset of the policy.
This week, the IRS said it will allow people to roll that cash back into certain defined-contribution retirement plans by Aug. 31. That extends the previously announced 60-day rollover period, which was scheduled to expire next month.
This action would not be subject to the one-rollover-allowance-per-12-month limit or other restrictions on people with inherited IRAs.
During an average year, the tax agency generally allows most pre-retirement payments to be rolled over into another retirement plan or IRA within 60 days, which often helps people defer tax payments. An individual cannot make more than one rollover from the same IRA account within a 12-month window. You also can’t make a rollover during this one-year period from the IRA to which the distribution was rolled over.
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Typically, account owners must take RMDs once they turn age 72. And people who inherited IRAs have to take distributions annually regardless of their age.
An individual who turned 70.5 in 2019 would have been required to take their first RMD by April 1 (the age was raised effective in 2020).
The IRS’ latest ruling applies to anyone who was supposed to take an RMD from certain plans, like a 401(k), in 2020, but it does not apply to defined benefit plans.
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Additionally, the IRS on Friday released updated guidance allowing more people to draw from their retirement accounts without penalty.
In addition to people who lost their jobs during the pandemic, the tax agency now says individuals who experienced a reduction in pay or were supposed to start a job – but experienced a delay due to the virus – can access their savings. Further, people who lost a job offer over the past three months can do so, as can people who suffer adverse financial consequences due to the impact of the virus on their spouses.
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