Compliance News | August 21, 2020

August 31 Extended Rollover Deadline Fast Approaching

DC plan participants who have already received a 2020 required minimum distribution (RMD) for which the 60-day rollover period has expired or will have expired by August 31, 2020 have until that date to take advantage of the extended rollover deadline the IRS announced earlier this year. Plan sponsors may wish to remind participants of this fast-approaching deadline.

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Background on RMD rollovers

Under the IRC, a participant who takes a qualified plan distribution that is eligible for rollover (a lump sum or payments over fewer than 10 years) has 60 days to roll the distributed amount to another qualified plan or an IRA. If the rollover is not made by the deadline, the distribution is treated as taxable income. Distributions that are RMDs are not eligible for rollover.

Reminder of the changes to the RMD rules for 2020

The CARES Act waived the DC plan RMD rules for 2020 and allowed certain 2020 distributions that would otherwise have been RMDs to be rolled over. However, by the time the CARES Act was enacted in late March, many participants had already taken 2020 RMDs.

As discussed in our July 10, 2020 compliance news posting, IRS Notice 2020-51 extended to August 31, 2020 the deadline for rolling over distributions that would have been RMDs absent the CARES Act and are taken or paid in 2020, even if the 60-day rollover period had expired. Generally, the extended deadline does not apply to 2020 distributions that would not have been RMDs. However the Notice also expanded the category of distributions that are eligible for rollover, and for the August 31, 2020 deadline, to include any 2020 distribution that would have been an RMD by being part of a series of payments made over 10 or more years, life expectancy or life.

Participants who receive 2020 distributions after August 31, 2020, and those whose 60-day period has not expired on or before August 31, 2020, must make their rollovers within their 60-day periods.

No additional extension expected

The IRS has not indicated any plans to extend the August 31, 2020 deadline.

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This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.

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