Does the Stimulus Bill have an Impact on RMDs?

The Stimulus Bill gives some relief to those “who would otherwise be required to withdraw funds from these retirement accounts during the economic slowdown due to COVID-19.”

Waiving 2020 RMDs will help many people avoid a tax bill on IRA value that has disappeared. Without this relief, 2020 RMDs would be based on the account value at Dec. 31, 2019, when the Dow was around 28,000, says Think Advisor’s article entitled “Stimulus Plan Includes Temporary RMD Waiver.”

The Stimulus Bill’s RMD waiver also applies to IRA and Roth IRA beneficiaries who have 2020 RMDs.  However, the Treasury Department says that about 80% of people subject to RMDs take more than the minimum because they need the money. As a result, the RMD waiver won’t be much help to these individuals.

RMDs are also waived for IRA owners who turned 70½ in 2019 and must take their 2019 RMD by April 1. Those who ignored traditional advice about spreading their first two RMDs over two years (2019 and 2020), can now have their first two RMDs waived.

If they have already taken any part of their first RMD in 2019, that can’t be undone or waived.

As far as special rules for use of retirement funds, like previous disaster-related relief, the Stimulus Bill waives the 10% early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts for coronavirus-related purposes made on or after January 1, 2020. The bill also states that “income attributable to such distributions would be subject to tax over three years, and the taxpayer may recontribute the funds to an eligible retirement plan within three years without regard to that year’s cap on contributions. Further, the provision provides flexibility for loans from certain retirement plans for coronavirus-related relief.”

The distribution is still taxable, but the tax impact can be lessened because it can be spread over three years. The funds can also be repaid within the three years.

The law also gives an exclusion for certain employer payments of student loans. This lets employers provide a student loan repayment benefit to employees on a tax-free basis. Under the provision, “an employer may contribute up to $5,250 annually toward an employee’s student loans, and such payment would be excluded from the employee’s income. The $5,250 cap applies to both the new student loan repayment benefit, as well as other educational assistance (e.g., tuition, fees, books) provided by the employer under current law.”

The provision applies to any student loan payments made by an employer for an employee after date of enactment and before Jan. 1, 2021.

Reference: Think Advisor (March 31, 2020) “Stimulus Plan Includes Temporary RMD Waiver”