With the IRS’s release of Notice 2020-51, anyone who has already taken their 2020 Required Minimum Distribution (RMD) has the opportunity to roll those funds back into the same account by August 31, 2020. This rule replaces the previous rules of the CARES Act, which required a roll back of the funds within 60 days of the RMD, or by July 15th.
Under the CARES Act, 2020 RMDs were suspended for both regular and inherited IRAs as well as most employer-sponsored retirement plans, including 401(k) and 403(b) plans. This suspension included anyone who turned 70 ½ in 2019 and would have to take their first RMD by April 1, 2020.
The general rule is that RMDs cannot be rolled over, and for non-RMDs, you are limited to one 60-day rollover every 12 months. With the passage of the suspension of the 2020 RMDs in the CARES Act as well as the issuance of Notice 2020-51, you are allowed to roll back any RMDs that were withdrawn prior to the passage of the law, as well as any RMDs withdrawn thru August 31st that you choose. Further, with the changes to the law, the RMD rollover will not count in the 1 rollover every 12 months rule. These rules only apply to your RMD. If you are not required to take a distribution, or if you withdraw more than your RMD, those distributions are still subject to the 60-day rollover period, and the 1 rollover every 12 months rule.
The decision to skip your 2020 RMD, or to roll back RMDs that you have already taken, should be based on your projected taxable income. The decrease of income by not taking your RMD may benefit other 2020 items that are affected by taxable income and give you a “double benefit” such as:
- The amount of your Social Security that is taxed,
- How much of the Education Credits you are phased out of,
- How much of your Medical Expenses are deductible, or
- How much of your investment income is subject to the Additional Medicare Tax.
While there are benefits of skipping your RMD in 2020, depending on what your total income will be in 2020, you may want to still take your RMD, take more than your RMD, or look to make a Roth Conversion depending on what your tax rate on that income might be.
If you have questions, please contact your SVA professional.