The Coronavirus Aid, Relief, and Economic Security (CARES) Act passed in response to the COVID-19 pandemic provided much needed relief to businesses and taxpayers to assist with the resulting economic crisis. The relief offered to individual taxpayers included the opportunity to take penalty free early distributions from retirement accounts and made it easier to take loans from retirement plans. Also, the Act waived Required Minimum Distributions (RMDs) for 2020 and allowed those who had already taken RMDs to roll the funds back into their retirement plan or IRA.
However, there are several restrictions that limits a taxpayers’ ability to roll back RMDs. One of the restrictions required the funds to be returned to the account with 60 days of the distribution, thereby falling under the existing 60-day rollover provision in the I.R.S code. Additionally, although 2020 RMDs from inherited IRAs were also waived, those already received could not be rolled back into the inherited IRA. Furthermore, the limit of one rollover per year was still in effect, so those who receive their RMD in a series of payments could not roll back more than one of the payments.
Luckily, the IRS recognized the challenges with the original plan and has recently provided some welcome relief. On June 23, 2020, the IRS issued Notice 2020-51 which eased many of these restrictions. The time period for rolling back 2020 RMDs has been extended until August 31, 2020, or 60 days from the date of the RMD, whichever is later. The notice also clarifies that rolling back RMDs will not count toward the one rollover per year limit, so those who receive their RMD as a series of payments can roll them all back to their retirement plan or IRA. Also, the IRS is now allowing those who received RMDs from inherited IRAs to roll them back.
If you have taken an RMD in 2020 and are curious what your options are, or simply want more information on these opportunities, contact your trusted advisor at CPS for a more thorough, personalized review.
Rick Bernard | MBA