IRS Provides Rollover Relief for Required Minimum Distributions Received in 2020

June 26, 2020

By Peter Alwardt

On June 23, 2020, the Internal Revenue Service announced in Notice 2020-51 (“Notice”) that retirement plan participants or IRA owners who already took a required minimum distribution (“RMD”) in 2020 from certain retirement accounts now have the opportunity to roll those funds back into a retirement account following the CARES Act RMD waiver for 2020.

Background

The CARES Act enabled any taxpayer with an RMD due in 2020 from a defined-contribution retirement plan (not from a defined benefit plan), including a 401(k) or 403(b) plan, or an IRA, to skip taking those RMDs this year. This includes anyone who turned age 70 1/2 in 2019 and would have had to take the first RMD by April 1, 2020.

The Relief

The 60-day rollover period for any RMDs already taken this year from a retirement plan or IRA has been extended to August 31, 2020, to give taxpayers time to take advantage of this opportunity and to effectively nullify the previously taken distribution.

Effect on Retirement Plans

The Notice confirms that a retirement plan participant who has previously received an RMD in 2020 now has until August 31, 2020 to recontribute the RMD he received to his or her retirement plan provided that the retirement plan allows rollover contributions.  If the plan does not allow rollovers, it will not be possible to recontribute the RMD to the plan.

Effect on IRAs

Under the Notice, an IRA owner or beneficiary who has already received an RMD distribution from an IRA in 2020 can repay the distribution to the IRA by August 31, 2020. The Notice provides that this repayment is not subject to the one rollover per 12-month period limitation and the restriction on rollovers for inherited IRAs.

Conclusion

The Notice provides welcome relief to taxpayers that had taken an RMD prior to the enactment of the CARES Act in March 2020.                    

About Peter Alwardt

Peter Alwardt is a Tax Partner specializing in employee benefits, tax and ERISA issues for domestic and international clients. He is a member of the American Institute of Certified Public Accountants and NY State Society of CPAs.