3 Important Updates to the 2020 Required Minimum Distribution Waiver
On June 23rd, the IRS issued additional guidance regarding 2020 required minimum distributions (RMDs). As you may remember, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) waived many required minimum distributions for 2020. However, there were still a few taxpayers that may not have been afforded relief under the CARES Act – that was addressed in this update. Here are a few key items from the recently issued IRS guidance that expands the number of people who are eligible for relief from their 2020 RMDs:
- 60 Day Rollover Period Extended to August 31st, 2020 – Normally, taxpayers have 60 days to roll over a distribution taken from an IRA if they do not want it to be taxable. The CARES Act provided that most individuals who previously took their RMD could roll it back into their tax-deferred account by July 15th in order to “reverse” it as long as the RMD was taken between February 1st and May 15th. The recently issued IRS guidance now provides that any RMD taken in 2020 (aside from defined benefit plans) may be reversed by August 31st, even if taken in January. This provides more taxpayers with an opportunity to keep the IRA distribution income off their 2020 tax return.
- One Rollover Per 12 Months Rule Waived – Typically, taxpayers are allowed one IRA rollover per rolling 12-month period. So, if someone performs an IRA rollover on March 1st, they would not be eligible for another rollover until March 2nd the following year. Since the reversal of 2020 RMDs is technically considered a rollover, individuals that had performed a rollover within the last 12 months were previously not eligible for relief under the CARES Act. The new IRS guidance has indicated that this “one rollover per 12 months” rule is waived for purposes of reversing an unwanted RMD before August 31st, so that should no longer be a hurdle.
- Inherited IRA Rollovers Allowed – Distributions taken from inherited IRAs typically are not allowed to be rolled over. Previously, if an individual had taken a distribution from an inherited IRA, they could not roll it back in, as rollovers from inherited IRAs generally are not allowed. Now, per the recently issued IRS guidance, those who took a distribution from their inherited IRA and wish to roll it back in can do so before the August 31st, 2020 deadline.
As you can see, there is some additional opportunity for relief available to those who may not have been able to reverse their RMD the first time around. Of course, everyone’s individual situation varies, but if you previously took a distribution from a tax-deferred plan and have not rolled it back in, reach out to your BDF team to discuss if this could be beneficial for you.
No representation is being made that any strategy shown will or is likely to achieve results similar to those shown in this presentation. BDF does not provide legal, tax, insurance, social security or accounting advice. Clients of BDF should obtain their own independent tax, insurance and legal advice based on their particular circumstances. The information herein is provided solely to educate on a variety of topics, including wealth planning, tax considerations, insurance, estate, gift and philanthropic planning.
Matt Foltz, CPA, CFP® is a Wealth Manager at BDF. He sits on the firm’s Financial Planning Committee which is dedicated to ensuring each client benefits from proactive, best in class financial planning. He earned his Bachelor of Science in Accountancy from Saint Joseph’s College and his Masters of Science in Accountancy from the University of Notre Dame. Matt is a Certified Public Accountant and a CERTIFIED FINANCIAL PLANNER™ professional.
Matt is a wealth manager at BDF. He sits on BDF's Financial Planning Committee and leads many of the firm's tax-related initiatives. Matt has a passion for building strong relationships with his clients and helping them make sound decisions. He also holds the Certified Exit Planning Advisor designation which helps him advise business owners on how to exit their business and prepare for retirement.