The Internal Revenue Service has issued a reminder to IRA owners, beneficiaries, or workplace retirement plan participants who received a Required Minimum Distribution (RMD) this year that they have until August 31 to rollover or repay the distribution to avoid paying taxes.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act waives RMDs during 2020 for IRAs and retirement plans, including for beneficiaries with inherited accounts. This waiver includes RMDs for individuals who turned age 70 ½ in 2019 and took their first RMD in 2020. Roth IRAs don’t require withdrawals until after the death of the owner.
Individuals who took RMDs in 2020, including those who turned 70 ½ during 2019, have the option of returning the distribution to their account or other qualified plan. Since the RMD rule is suspended, RMDs taken in 2020 are considered eligible for rollover. Therefore, RMDs can be rolled over to another IRA, another qualified retirement plan, or returned to the original plan by the August 31 deadline, to avoid paying taxes on that distribution.
IRS Notice 2020-51 also provides that the one rollover per 12-month period limitation and the restriction on rollovers to inherited IRAs don’t apply to this repayment.
The CARES Act provisions apply to most retirement plans, including traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k) plans, 403(b) plans, 457(b) plans, profit sharing plans and other defined contribution plans. The RMD suspension does not apply to qualified defined benefit plans.
Individuals who have questions regarding the information noted above should contact their E. Cohen advisor.