IRS Grants Required Minimum Distribution (RMD) Rollover Relief

The Internal Revenue Service announced on June 23rd that anyone who already took a required minimum distribution (RMD) in 2020 from certain retirement accounts now has the opportunity to roll those funds back into a retirement account following the CARES Act RMD waiver for 2020. For those interested in taking advantage of this option, they will need to do so by August 31.

HOW DOES THIS IMPACT ME?

The CARES Act enabled any taxpayer with an RMD due in 2020 from a defined-contribution retirement plan, including a 401(k) or 403(b) plan, or an IRA, to skip those RMDs this year. This includes anyone who turned age 70 1/2 in 2019 and would have had to take the first required minimum distribution by April 1, 2020. This waiver does not apply to defined-benefit plans.

The new guidance helps:

• Early birds who took RMDs in January.
• Beneficiaries (inherited IRA owners) who under the law were never allowed to do a rollover.
• Individuals who violated the once-per-year rollover rule who were never able to do another rollover.
• Individuals who took multiple required minimum distributions (through substantially equal payments).

The 60-day rollover period for any RMDs already taken this year has been extended to August 31, 2020, to give taxpayers time to take advantage of this opportunity.

In addition to the rollover opportunity, 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 August 31, 2020. The IRS notice provides that this repayment is not subject to the one rollover per 12-month period limitation and the restriction on rollovers for inherited IRAs.

For some people, especially if they’re in a low tax bracket this year, it might be wise to keep their RMDs and not put the money back in. But for others where the 2020 required minimum distribution pushed them into a higher bracket, returning the RMD now to reduce your income might reduce Medicare surcharges or tax on Social Security.

HOW CAN KATZABOSCH HELP?

Every person’s financial situation is different. We highly encourage you to work with your trusted advisor to understand how to leverage the above item to meet your financial goals. If you have any questions please reach out to your KatzAbsoch representative or contact us by clicking here.