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The CARES Act provided a waiver of required minimum distributions (RMDs) for 2020. It applied to IRAs, 401(k) plans, 403(b) plans, and governmental 457(b) plans. It also applied to 2019 RMDs for those who were required to take their first RMD by April 1, 2020, if the distribution was not taken before January 1, 2020.
The one question it left unanswered was, what if the RMDs have already been taken? The relief package did not include any repayment provisions for situations where the 2019 or 2020 RMDs were already taken.
The Act stated that RMDs taken could have been undone if they were eligible to be rolled over. In order to be eligible they must have been rolled over within 60 days and the individual must not have taken an IRA to IRA rollover in the last 12 months preceding the receipt of the 2020 RMD.
Then, on Thursday, April 9, 2020, the IRS issued Notice 2020-23, which extended additional key tax deadlines for individuals and businesses. This notice indirectly extended the 60-day rollover rule for IRAs until July 15, but only for distributions taken between February 1 and May 15 of this year. It did not however include a 60 day extension for RMDs taken prior to February 1.
This still left anyone who decided to take their RMD early this year, out in the cold. However, as spring turned to summer, June brought with it a feeling of warmth and a sigh of relief for those who decided to take their RMD early this year.
On June 23rd, the IRS issued notice 2020-51. In this notice, all 2020 RMDs are now eligible to be rolled over, as long as they are rolled over by August 31, 2020. This effectively waives both the 60-day limit and the 12-month limitations previously mentioned. If a person has already received their distribution amount, the recipient may repay the distribution back into the IRA that distributed it. These repayments will be treated as a rollover but will not apply towards the one rollover per 12-month period limitation.
In summary, the key takeaways for IRS notice 2020-51 are:
- RMD suspension for 2020 under the CARES Act now applies to all RMDs taken in 2020
- The RMD must be placed back into the IRA it was originally taken from
- It is now characterized as a replacement versus a rollover which eliminates the barrier of the one rollover per year rule
- They must be replaced by August 31, 2020
- IRA beneficiaries will have a unique opportunity to also rollover their unwanted RMD provided they do so by August 31, 2020.
As always, we will keep you informed as these types of items continue to unfold.
This document is provided for informational purposes only by Dunham & Associates Investment Counsel, Inc. solely in its capacity as a Registered Investment Adviser and should not be construed as legal and/or tax advice. Dunham & Associates Investment Counsel, Inc. does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.