04 Jun Can I skip my IRA distribution because of the coronavirus?

Q. Because of the COVID-19, I can forgo my 2020 RMD. I have an inherited IRA from my father who passed away in July 2018. His 92nd birthday was in June 2018. Unfortunately, because he had not named secondary beneficiaries, according to the rules, we have to withdraw all of the IRA by the end of 2022. Does the stimulus package change this or will I still have to withdraw the balance by the end of 2022?
— Planning

A. For most retirement account owners, the CARES Act waived Required Minimum Distributions (RMDs) for calendar year 2020.

This waiver also applies to inherited retirement accounts.

If a person was named as a beneficiary of a retirement account owned by someone who died before 2020, the beneficiary had the option to “stretch” the RMD over his or her life expectancy as determined by the Single Life Expectancy Table published by IRS, said Adam L. Sandler, an attorney with Einhorn. Barbarito, Frost & Botwinick in Denville.

(IRAs inherited in 2020 and beyond are subject to stricter distribution rules.)

As a result of the CARES Act, the beneficiary does not have to take the 2020 RMD, he said.

“If the estate was named as the beneficiary of a retirement account owned by a decedent who died before 2020, the next step is to determine which distribution rules apply,” Sandler said.

If the decedent had not started taking his or her RMDs before death, then, generally, the “five-year rule” applies, he said.

Sandler said the account must be withdrawn by Dec. 31 of the fifth year after the decedent’s death, which is specifically the calendar year that contains the fifth anniversary of the decedent’s death.

For example, if the decedent died in 2018, then the beneficiary is not required to withdraw any amount until Dec. 31, 2023, at which time the entire account must be withdrawn to avoid a penalty, he said.

“However, the CARES Act states that calendar year 2020 simply does not count in the five-year calculation, effectively turning the five-year rule into a six-year rule,” Sandler said. “Therefore, that same account does not have to be withdrawn until Dec. 31, 2024.”

But, he said, if the estate was named as the beneficiary of the retirement account and the decedent had already started to take his or her RMDs before death, then a different “stretch” rule applies.

Distributions must be taken every year following the decedent’s death based upon the decedent’s life expectancy at the time of his or her death, again, as determined by the Single Life Expectancy Table published by IRS, he said.

As a result of the CARES Act, however, the 2020 RMD does not have be withdrawn, he said.

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This story was originally published on June 4, 2020.

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