The CARES Act allowed individuals with required minimum distributions (RMDs) due in 2020 from IRAs and defined contribution retirement plans to skip those RMDs this year. But where does that leave clients who took their RMDs prior to the CARES Act? Retirement Director Ben Rizzuto explains how the recently introduced IRS Notice 2020-15 provides relief for these individuals by allowing them to roll the funds back into a retirement account.
For weeks, I’ve been getting questions from financial professionals regarding what options are available for clients who took required minimum distributions (RMDs) early in 2020 only to have the COVID-19 pandemic and subsequent CARES Act rule that they didn’t have to.
Of course, if a client was within the 60-day rollover period, the solution is fairly simple: the funds can either be rolled back into the original retirement account or rolled over to another IRA. If the RMD was taken after February 1, clients should refer to IRS Notice 2020-23, which extended the window for RMDs to be rolled back even if they occurred outside the 60-day period.
Unfortunately, for those clients who took RMDs from their retirement accounts before February 1, my best advice until last week amounted to: “Hope and pray for IRS relief or legislation from Congress.”
Well, those prayers have been answered thanks to IRS Notice 2020-51. The notice provides relief for those proactive individuals who took their RMD in January, as they can now roll those funds back into the original IRA or contribute them to another tax-deferred account up until August 31, 2020. Note that the amount that can be contributed is limited to the amount of the RMD; if extra amounts were taken at the time of the distribution, those would not be eligible to be rolled back in.
The notice extends this relief not only to RMDs that were taken in January but also to RMDs that were taken by beneficiaries (including non-spouse beneficiaries), as well as any RMDs that, if rolled back, would violate the once-per-year rollover rule. (This rule was instituted in 2014 via IRS Announcements 2014-15 and 2014-32, which stated that individuals can make only one rollover from one IRA to another, or the same, IRA in any 12-month period, regardless of the number of IRAs they own.)
In summary, clients who have taken RMDs from more than one account can roll them all back in to any or all of those accounts. And clients who have taken monthly distributions can either roll them back over in one lump payment or in several contributions.
Some have said that the IRS stretched its legal authority through this decision. At this point, however, the notice has resulted in a fair outcome for those affected and the once-per-year rollover rule will still be in effect after August 31. So be sure to reach out to clients and beneficiaries who have been affected by this to ensure that their RMDs can be rolled back as soon as possible, if desired.
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