In late March, the Coronavirus Aid, Relief, and Economic Security (CARES) Act waived Required Minimum Distributions (RMDs) from certain retirement accounts including Individual Retirement Accounts (IRAs) and qualified retirement plans, such as 401(k) or 403(b) plans. This applies to anyone who is already taking RMDs as well as individuals that turned age 70 ½ in 2019 and would have had to take their first RMD by April 1, 2020.
Normally, there is a 60-day rollover period where distributions taken from a retirement account can be deposited back into a retirement account owned by the taxpayer. When a rollover is completed, the distribution is not included in the taxpayer’s taxable income for the year since the funds ended back up in a qualified retirement account. Since the CARES Act wasn’t passed until late March, the 60-day rollover period had already expired for individuals that had already taken their 2020 RMDs early in the year.
Therefore on June 23, 2020, the Internal Revenue Service (IRS) issued Notice 2020-51 providing guidance relating to the waiver of 2020 RMDs. Individuals who already took their 2020 RMDs are allowed to repay the distribution to a retirement account by August 31, 2020. This gives individuals who took their 2020 RMD(s) in early 2020 the option of rolling over those funds to a qualified retirement account and continuing to defer the tax, even though the standard 60-day rollover period has passed.
The notice also answers questions about the number of indirect 60-day rollovers from an IRA per 12-month period. Typically, individuals are only allowed to make one rollover per 12-month period. However, under the notice, repayments of an RMD under the CARES act will not be treated as an indirect rollover. This allows taxpayers to make an additional repayment of an RMD within the same 12-month period. The complete IRS Notice 2020-51 can be found here.
In addition to the changes surrounding RMD rules that the CARES Act created, the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) also changed the rules surrounding RMDs. Due to the SECURE Act, beginning in 2020 the age at which RMDs are required to start was changed from age 70 ½ to age 72.