IRS Notice 2020-6 Provides Reporting Relief for IRAs Following SECURE Act Change to Required Beginning Date | Practical Law

IRS Notice 2020-6 Provides Reporting Relief for IRAs Following SECURE Act Change to Required Beginning Date | Practical Law

IRS Notice 2020-6 provides reporting relief and guidance to financial institutions maintaining individual retirement accounts (IRAs) regarding the changes to IRA required minimum distributions (RMDs) under the Setting Every Community Up for Retirement Enhancement Act (SECURE Act).

IRS Notice 2020-6 Provides Reporting Relief for IRAs Following SECURE Act Change to Required Beginning Date

by Practical Law Employee Benefits & Executive Compensation
Published on 27 Jan 2020 • USA (National/Federal)
IRS Notice 2020-6 provides reporting relief and guidance to financial institutions maintaining individual retirement accounts (IRAs) regarding the changes to IRA required minimum distributions (RMDs) under the Setting Every Community Up for Retirement Enhancement Act (SECURE Act).
On January 24, 2020, the IRS issued Notice 2020-6, which provides reporting relief and guidance to financial institutions maintaining individual retirement accounts (IRAs) regarding the changes to the required beginning date for IRA required minimum distributions (RMDs) under the Setting Every Community Up for Retirement Enhancement Act (SECURE Act). The relief applies to financial institutions that provide an RMD statement or a Form 5498 to an IRA owner who will attain age 70.5 in 2020.

SECURE Act Increases the Age for the Required Beginning Date for IRA RMDs

The Further Consolidated Appropriations Act, 2020 (Pub. L. No. 116-94 (Dec. 20, 2019)), which includes the SECURE Act, was enacted on December 20, 2019 (see Legal Update, Government Funding Legislation Includes the SECURE Act, Which Changes Retirement Plan Requirements).
The SECURE Act increases the age for the required beginning date applicable to IRAs and other retirement plans. Under the SECURE Act, RMDs from an IRA or employer-sponsored retirement plan must start on April 1 of the calendar year following the calendar year in which the individual attains age 72, rather than age 70.5, as was required before the SECURE Act. This change is effective for distributions required to be made after December 31, 2019, with respect to individuals who turn 70.5 after December 31, 2019. Therefore, IRA owners who attain age 70.5 in 2020 will not have:
  • A required beginning date of April 1, 2021.
  • An RMD for 2020.
If an IRA owner has an RMD due for 2020:
  • The financial institution that is the trustee, custodian, or issuer maintaining an IRA must file a 2019 Form 5498 by June 1, 2020. The financial institution must indicate in Box 11 of the Form that an RMD is required for 2020, and it may provide further information in Box 12a (RMD Date) and Box 12b (RMD Amount).
  • Under IRS Notice 2002-27, the financial institution must furnish an RMD statement to the IRA owner by January 31, 2020, that informs the IRA owner of the date the RMD is required, and provides the amount of the RMD or offers to calculate that amount upon request.

Reporting Relief in Notice 2020-6

Due to the change in the required beginning date, financial institutions should not:
  • Send the RMD statement required under IRS Notice 2002-27 to IRA owners who will attain age 70.5 in 2020.
  • Include a check in Box 11 or entries in Box 12a or 12b in the 2019 Form 5498 for IRA owners who will attain age 70.5 in 2020.
However, Notice 2020-6 provides relief to financial institutions because they will have a short amount of time to change their systems to comply with the SECURE Act. Specifically, if a financial institution provides an RMD statement to an IRA owner who will attain age 70.5 in 2020, including by providing a Form 5498, then the IRS will not consider that statement to have been provided incorrectly if the financial institution notifies the IRA owner no later than April 15, 2020, that no RMD is required for 2020.
Notice 2020-6 encourages financial institutions to remind IRA owners who attained age 70.5 in 2019 and have not yet taken their 2019 RMDs that they still must take those RMDs by April 1, 2020.
Notice 2020-6 indicates that the Treasury Department and the IRS are considering guidance for plan administrators, payors, and distributees that provided an RMD to a retirement plan participant or IRA owner who will attain age 70.5 in 2020.

Practical Implications

Notice 2020-6 is the first piece of guidance from a federal agency on the SECURE Act. Financial institutions that maintain an IRA should be prepared to use the safe harbor provided by the Notice if they erroneously provide an RMD statement or a Form 5498 to an IRA owner who will attain age 70.5 in 2020.
For a chart that displays summaries and effective dates of the retirement plan-related provisions in the SECURE Act and other parts of the Further Consolidated Appropriations Act, 2020, see SECURE Act Compliance Chart.