When I wrote about the suspension of required minimum distributions (RMDs) for 2020 by the CARES Act, which was signed into law on March 27, I received a number of emails from readers who could not take advantage. They had taken their RMDs earlier in the year, and there was no way for them to redeposit their RMDs if they couldn’t meet the rollover rules, which had two barriers: a 60-day time limit and a once-in-a-12-month-period limitation.
W.E. was affected: “My 2020 RMDs were received after the 2020 RMD Suspension was retroactively in effect, but before it was announced on 3/27/2020. Since the suspension of 2020 RMD was intended to benefit all seniors by reducing their 2020 tax burden and help to preserve their battered 401(k)s, I feel that I should be entitled to take full advantage afforded me being able to return and reverse my 2020 RMDs.”
He continued, “Can you make any suggestions on how seniors in my position, having received multiple suspended 2020 RMDs before the 2020 RMD Suspension was announced, can receive fair treatment and fully benefit from the CARES ACT?”
W.E., I have good news for you. On June 23, 2020, the IRS came through when it issued Notice 2020-51, which you can find here: tinyurl.com/y8o2zxjp.
The 60-day rollover period for RMDs in 2020 has been waived as well as the 12-month rule for anyone who has taken their RMDs so far this year. But, you have to do the rollover before Aug. 31.
First, any taxpayer who is subject to RMDs in 2020 from a defined-contribution retirement plan, including a 401(k), 403(b) plan, or an IRA (but not a defined benefit plan), can skip RMDs this year. This includes anyone who turned age 70 1/2 in 2019 and would have had to take the first RMD by April 1, 2020.
Second, anyone who took RMDs in 2020 and would like to “undo” them has until Aug. 31, 2020 to redeposit the RMDs. That is, an IRA owner or beneficiary who has already received a distribution from an IRA of an amount that would have been an RMD in 2020 can repay the distribution to the IRA by Aug. 31, 2020. There is no limit on the number of rollovers if you withdrew moneys multiple times or from multiple IRAs and other tax deferred accounts.
The notice also makes clear that RMDs from inherited IRAs are also eligible to roll over under Notice 2020-51.
R.R. wrote: “I am 77 years old with my birthday in December. I have been taking the RMD since I was 70 1/2.” R.R. then asked an important question: If he doesn’t take his 2020 RMDs, will he be required to take two RMDs in 2021? The answer is no. This is a suspension of 2020 RMDs, not a delay.
L.B. wrote: “I moved a large sum of money from my IRA into my cash account on Jan. 2 this year. With the new ruling I'd like to move it back to my IRA. Can I?” Now that we have Notice 2020-51, the answer is yes, but you must act before Aug. 31.
J.B. wrote: “I am 77 years old and have been taking my RMD the last four years. This year with the break on RMDs, I plan to roll some money over from my traditional IRA into my Roth IRA and still keep within my tax bracket. Normally I would have to take my RMD before I could do a rollover.” He then asked: Can he use the withdrawal to do a taxable Roth conversion? The answer is yes. Since the RMD he took in 2020 no longer has the character of an RMD (since RMDs are suspended), there is no restriction against using those moneys to convert to a Roth.
So, all in all, very good news for early bird RMDs. We can all agree with Melissa Ridolfi, the vice president of retirement and college products at Fidelity Investments, who said, “The fact the IRS has extended the date for retirees to repay a distribution into their IRA -- up to August 31 -- is welcome news.”
For a quick video that covers the topics we’ve discussed in today’s column, go to vimeo.com/432667715/e74f8e0997.
Julie Jason, JD, LLM, a personal money manager (Jackson, Grant Investment Advisers Inc. of Stamford, Connecticut) and award-winning author, welcomes your questions/comments (firstname.lastname@example.org). Please visit www.juliejason.com.
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