IRS Issues Guidance for Reporting Required Minimum Distributions in 2020

Within the newly enacted Further Consolidated Appropriations Act, 2020 (FCAA) is another act-the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), which significantly changes retirement plan funding and distribution.[1] This new law increases the age at which account holders are required to take distributions from their individual retirement accounts (IRAs) from 70½ to 72 years old.[2]

 On January 24, 2020, the IRS issued guidance in Notice 2020-6 to financial institutions regarding reporting required minimum distributions (RMDs) for 2020 in light of the amendment to Internal Revenue Code (IRC) §401(a)(9) made by the SECURE Act.[3] In the Notice, the IRS clarified that:

This amendment to § 401(a)(9) is effective for distributions required to be made after December 31, 2019, with respect to individuals who will attain age 70½ after that date. As a result of this change, IRA owners who will attain age 70½ in 2020 will not have a required beginning date of April 1, 2021. This means that these IRA owners (who, prior to enactment of the SECURE Act, would have been required to take minimum distributions from their IRAs for 2020) will have no required minimum distribution (RMD) for 2020.[4]

The IRS further explains that financial institutions that are trustees, custodians, or issuers maintaining an IRA are required to file a 2019 Form 5498, IRA Contribution Information by June 1, 2020. On this form, the financial institution must indicate with a checked Box 11 that an RMD is required for 2020. Furthermore, the IRS noted that if an RMD is due for 2020, then the financial institution must provide the IRA owner with an RMD statement by January 31, 2020. This RMD statement must inform the owner of: (1) the date upon which the RMD must be distributed, and (2) the amount of the RMD, or an offer to calculate that amount per the owner's request.

According to the Notice, the IRS recognizes that financial institutions face a short amount of time since the SECURE Act's enactment to change their systems for providing these RMD statements. As such, the IRS offers relief in the Notice-providing that:

if a financial institution provides an RMD statement to an IRA owner who will attain age 70½ in 2020 (including by providing a Form 5498), then the Internal Revenue Service (IRS) will not consider such a statement to have been provided incorrectly, but only if the IRA owner is notified by the financial institution no later than April 15, 2020, that no RMD is required for 2020.[5]

In other words, instead of a January 31, 2020, deadline, financial institutions will now have until April 15, 2020, to let IRA account owners turning 70½ in 2020 know that their RMDs do not start this year.

Additionally, the IRS noted that Box 11 in Form 5498 should remain unchecked for IRA owners who turn 70½ years old in 2020.[6]

Finally, the IRS reiterated that the SECURE Act did not change the required beginning date for those individuals who are 70½ before January 1, 2020.

If you have questions or concerns about taxes and your IRA, call Frost & Associates, LLC today at 410-497-5947.

[1] Pub. L. No. 116-94, enacted on December 20, 2019.

[2] IRC §401(a)(9)(C), as amended by Pub. L. No. 116-94, Div. O, §114.

[3] Notice 2020-6, 2020-7 I.R.B. __ (Feb. 17, 2020).

[4] Id. at 1-2.

[5] Id. at 2.

[6] Similarly, the financial institution should make no entries in Box 12a or 12b for owners who will be 70½ in 2020.

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