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Rollover Relief for 2020 Required Minimum Distributions - Action Required by 8/31/20!

The CARES Act, signed into law on March 27 of this year, suspended the Required Minimum Distribution (RMD) rules for 2020. This change allowed taxpayers normally required to withdraw funds from certain defined contribution plans and IRAs to avoid selling securities in a down market in order to withdraw the required funds. However, those who had already taken their RMD for 2020 were required to keep the funds and pay tax on them unless they were within the 60-day rollover window allowing them to roll them back into the retirement account. An April notice extended the rollover period to July 15 for distributions taken between February 1 and May 15.

Notice 2020-51 provides that any individual who has already received a required minimum distribution for 2020 now has the opportunity to roll those funds back into a retirement account based on the RMD waiver in the CARES Act if they act soon. The 60-day rollover period has been extended to August 31, 2020, to give taxpayers time to take advantage of the opportunity. This includes distributions taken in January 2020 and RMD's required to be taken by April 1, 2020, for individuals who attained age 70 1/2 in 2019.

Inherited IRAs

The notice also makes clear that beneficiaries of inherited IRAs, who could never do a rollover in the past, can take advantage of this opportunity. It also covers those taking substantially equal payments over their life expectancy. These rollovers are also not counted as a rollover for the once-per-year rollover rule.

Each individual should consider their own personal financial situation and tax bracket in deciding whether to take advantage of deferral or a rollover. For someone in a very low tax bracket, it might make sense to take the RMD, getting funds out in a tax-efficient manner. For others, where the RMD pushes them into a higher tax bracket, taking advantage of the waiver could reduce Medicare surcharges or tax on Social Security as well as income tax. Those experiencing significant losses in 2020 may even want to consider converting a taxable IRA account into a ROTH IRA while paying little or no tax. Each person should consult their tax advisor to help them make the best decision for their unique circumstances.

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If you have any questions, please contact your Bonadio team here.

The information and advice we are providing for this matter relates to COVID-19 legislative relief measures. Because legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that could modify some of the advice and information provided to you, after the conclusion of our engagement. We, therefore, make no warranties, expressed or implied, on the services provided hereunder.