Required Minimum Distributions Suspended For Retirement Plans and IRAs For 2020

The bipartisan COVID-19 stimulus bill just signed by President Trump includes welcome tax relief for retirees: The required minimum distribution rules for Individual Retirement Accounts and 401(k)s are waived for 2020. That means that instead of taking money out this year, retirees can keep their investments growing. This is a repeat of the 2009 RMD holiday during the Great Recession.

There is some confusion as to if this flexibility pertains to inherited IRAs and 401(k)s. The bill suggests that it pertains to any RMD from any individual-account retirement plan, which should include inherited IRAs or 401(k)s. This position is bolstered by the purpose of the bill itself: to provide relief to Americans during this pandemic emergency. This is not a technical tax bill looking for revenue, so expect the IRS and the government to interpret the bill under that notion.

The CARES Act also created a new exception to the 10% early withdrawal penalty tax under code section 72(t) for those who take retirement distributions prior to age 59.5. In 2020, Americans impacted by the coronavirus crisis can take out up to $100,000 from their IRA or 401(k) without penalty tax. The distribution would be subject to normal taxation rules regarding distributions.