IRS Grants RMD Relief for IRAs, 401(k)s and Other Retirement Accounts

The CARES Act, passed in late March, waived the requirement to take any RMDs (Required Minimum Distributions) for 2020. If you are 72 years or older or have an inherited IRA, you are required to take RMDs from retirement accounts such as IRAs, 401(k)s and other qualified retirement accounts. However, many individuals had already taken distributions for the year. Many individuals also took systematic distributions throughout the year, i.e. a monthly or quarterly check for those RMDs.

Many people were questioning, “How do I undo those RMDs that I had already taken now that the CARES Act no longer requires those distributions for 2020?”. The IRS had previously provided limited relief where if you had taken a distribution after February 1^st, you had until July 15^th to undo the RMD you might have already taken. Normally, under IRS rules and regulations, you can initiate a 60-day rollover one time per 12-month period. If you had taken multiple payments for your RMDs, or if you had taken your RMD before February 1, 2020, you wouldn’t be able to rollover. And, with an inherited IRA, you are not allowed to do a 60-day rollover at all. New IRS guidance have changed all of that for 2020.

In June 2020, the IRS granted rollover relief for individuals who took RMDs from their IRAs, 401(k)s and other retirement accounts in the first half of 2020. Any RMDs you have taken in 2020 can be rolled back into your retirement account. It is technically considered a 60-day rollover, but you can do multiple rollovers allowing for each distribution to be put back into those accounts. This includes if you have an inherited IRA as well. You also have until August 31, 2020 to accomplish a rollover for any 2020 RMDs.

This is the first time the IRS has passed guidance that is outside the scope of what the law says. And this certainly helps taxpayers this year. However, there are a variety of factors to consider, such as whether you had tax directly taken out of that rollover and sent to the IRS when it comes to determining how to put the money back.

What this does for many people who are 72 years or older is it allows for potential tax planning opportunities such as Roth conversions or realizing Long-Term Capital Gains at low tax rates.

As always, please consult your financial or tax professional before proceeding with movement of any retirement account funds. Brogan Financial is here to help you with this and any other retirement planning questions. Give us a call if you would like more information, or to schedule a complimentary review.