LawFlash

SECURE Act Provides RMD Statement Relief for IRA Providers

February 05, 2020

In Notice 2020-06 the Internal Revenue Service (IRS) provides helpful relief for IRA providers that were unable to cancel the required minimum distribution (RMD) statements they had set to go out to IRA owners turning age 70½ in 2020. Due to changes made by the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), there are no RMDs for 2020 for this group of IRA owners. The SECURE Act made other significant changes to IRAs, as discussed in our previous LawFlash in greater detail.

IRA Providers Required to Provide RMD Statements to IRA Owners

Under prior IRS guidance, if an RMD is required for a calendar year for an IRA and the IRA owner is alive at the beginning of the year, the IRA provider that held the IRA as of December 31 of the prior year is required to provide a statement to the IRA owner by January 31 of the calendar year. The RMD statement is required to include (or offer to provide) the RMD amount for the calendar year, the date the RMD must be made, and that the IRA provider will be reporting to the IRS that the IRA owner is required to receive an RMD for the calendar year. If the RMD amount is included in the IRA statement, the IRA provider is permitted to use certain assumptions in calculating the RMD amount. No RMD statement is required for Roth IRAs or inherited IRAs. Many IRA providers send the RMD statement in the form of a letter, along with required year-end IRA fair market value information.

Under the SECURE Act, no RMDs are required for 2020 for IRA owners who turn 70½ in 2020. For IRA owners who turn 70½ in 2020 (and other IRA owners who turn 70½ after 2020), RMDs are first required for the calendar year in which the IRA owner turns 72 and RMDs for the first required calendar year must be made by April 1 of the calendar year following the calendar year in which the IRA owner turns 72. Since the SECURE Act was enacted on December 20, 2019, and IRA providers were required to provide IRA statements for 2020 by January 31, 2020, IRA providers were left with little time to update their systems to cancel the IRA statements to IRA owners who turn 70½ in 2020.

IRA RMD Statement Relief for IRA Providers

In recognition of the little time that IRA providers had to update their systems after the SECURE Act was enacted, the IRS provides relief in Notice 2020-06. The relief provides that if an IRA provider sent an RMD statement to an IRA owner who turns 70½ in 2020, the IRS will not consider the statement to have been provided incorrectly, but only if the IRA provider notifies the IRA owner no later than April 15, 2020, that no RMD is required for 2020. The IRS also states in Notice 2020-06 that IRA providers should not provide information about RMDs in Boxes 11, 12a, and 12b of the 2019 Form 5498 for any IRA owner who turns 70½ in 2020.

In the Notice, the IRS also encourages IRA providers to remind IRA owners who reached age 70½ in 2019 and have not yet taken their 2019 RMDs that such RMDs must be taken by April 1, 2020. The SECURE Act did not change the RMD starting date requirement for these IRA owners.

Next Steps and Future Outlook

While relief is provided for an IRA provider’s inability to update its systems for 2020, IRA providers should consider prompt action to prevent IRA owner disruption and confusion if RMD statements were provided to IRA owners who will turn 70½ in 2020. A plan for prompt and efficient communication is advisable to avoid IRA owners taking RMDs in reliance on the incorrect RMD statements.

The Notice indicated that the US Department of the Treasury and the IRS are considering issuing additional guidance on the SECURE Act. We will continue to monitor and report as additional guidance is issued.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Chicago
Marla J. Kreindler
Julie K. Stapel

New York
Craig Bitman

Philadelphia
Robert Abramowitz
Sariyah Buchanan
William Marx
Vivian McCardell

Washington, DC
Lindsay Jackson
Daniel Kleinman
Michael Richman