The CARES Act enacted on March 27, 2020, eliminates an individual’s requirement to take a Required Minimum Distribution (RMD) from their IRA accounts and/or retirement plans for calendar year 2020. If you have already taken your Required Minimum Distribution for calendar year 2020, the IRS has created a short time window for you to reverse that transaction. To qualify, you must reverse the transaction on or before August 31, 2020.
Regular Rollover Option
The “regular” rollover option applies to RMD distributions received from regular IRA accounts and Roth IRA accounts (including IRA accounts inherited by a spouse) and other types of qualified retirement plans.
If you took your RMD less than 60 days ago, and you could have rolled that distribution over if it were not an RMD, then the normal 60 day rollover rules apply. Normally, you are not allowed to rollover an RMD distribution. But since the distribution you received is no longer being treated as RMD during calendar year 2020, the 60 day rollover rules are still available. Beginning on the date you receive the IRA or retirement distribution, you have 60 days to deposit all, or any portion of the distribution, into a different IRA or retirement plan. Although some exceptions exist, you are generally limited to 1 rollover per year.
If you took your RMD more than 60 days ago, and you could have rolled that distribution over if it were not an RMD, IRS Notice 20-51 gives you until August 31, 2020, to complete the rollover. You can roll over all, or any part of the RMD, so long as you meet the August 31st deadline.
Certain technical rules may not allow you to use the “regular” rollover option. For example, only a surviving spouse can roll over an inherited IRA. This option is not available to others who are taking required distributions from an inherited IRA.
Repayment Option for IRAs Only
If the “regular” rollover option is not available to you, and you received the RMD from a regular IRA or a Roth IRA (including inherited IRAs), you may be able to use the Repayment Option. Under this option, all or any part of the RMD must be repaid to the same account from which you received the RMD. You must complete the repayment on or before the August 31st deadline.
For income tax purposes, this repayment will be treated as a non-taxable rollover. However, the repayment will not be counted as a rollover for purposes of other technical rules.
Take Action Now
If you have taken only the RMD for 2020 and wish to reverse that transaction, contact your financial advisor directly to arrange for a rollover or repayment of the RMD amount on or before August 31st. Please be aware that you must rollover or repay based on the gross RMD amount, including any tax withholding completed on your behalf, rather than the net RMD amount you received. This means that you must come up with additional funds to repay the tax withholding and wait for the IRS to refund that tax withholding when you file your 2020 personal income tax return next year.
If you took more than the RMD amount for 2020 or have other types of special situations, you may still be able to reverse part or all of the transaction. Please contact a member of our Estate Planning Practice Group to discuss your options. Most of those options are still subject to the August 31st deadline.