It seems that summer is flying by, even in uncertain times. You can count on only a few things in life and taxes is one of them. We are fast approaching the deadline to rollover any RMDs that were taken in 2020. Below is a brief explanation of what a RMD is and how the CARES Act plays into your RMD for 2020. If you are in a position where you currently do not need the money from your IRA or 401(k), the RMD Waiver, under the CARES Act, can give you an advantage in tax planning for 2020.
IRA and 401(k) plan owners are required to take a certain amount of money out of their accounts each year beginning in the year they turn 72 (or you are taking them from age 70 ½ before the new rules). These mandatory distributions are called Required Minimum Distributions (RMDs). The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) enabled any taxpayer with an RMD due in 2020 from a defined contribution retirement plan, including a 401(k) plan, 403(b) plan, or an IRA, to skip those RMDs this year. This includes anyone who turned age 70½ in 2019 and would have had to take their first RMD by April 1, 2020.
Taxpayers who took a Required Minimum Distribution in 2020 have the opportunity to roll those funds back into a retirement account; any RMD taken in 2020 can be undone. Originally the IRS only allowed for RMDs taken during a certain time frame, but, the IRS now says that any RMD taken in 2020 can be rolled over. The repayment will be treated as a tax-free rollover that is not subject to the “one-rollover-every-1-months” rule.
Tax-free rollovers are also available for 2020 RMDs taken by beneficiaries of inherited IRAs, pursuant to IRS guidance. These repayment rollovers are limited to the amount that would have been required as an RMD if the CARES Act had not waived RMDs for the year. Rollovers aren’t available for 2020 distributions from a traditional pension (i.e., a “defined-benefit plan”), either.
The extended Rollover Period ends August 31, 2020. If you took an RMD in 2020 and wish to roll it back into your retirement account, the rollover must be completed by August 31, 2020. The August 31 deadline also includes RMDs that normally would have to be rolled over within 60 days.
Please contact us at Cares@BrinkerSimpson.com with any questions regarding RMD’s