Retired couple sitting on deck

IRS Issues New Rollover Rules for 2020 RMDs

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed in March 2020, eliminated the Required Minimum Distribution (RMD) from defined contribution plans and IRAs for 2020. The waiver of RMDs for 2020 does not apply to defined benefit plans. For taxpayers who had already taken their RMD for 2020, the law provided a 60-day rollover period during which the funds could be put back into an eligible retirement account without triggering tax consequences. On Tuesday, June 23, 2020, the IRS issued Notice 2020-51 which extends the period that RMD recipients have to rollover the RMD taken this year until August 31, 2020. Thus, regardless of when the RMDs were taken in 2020, a recipient has until the end of August to roll the funds into an eligible retirement plan.

In addition to the rollover opportunity, the notice provides that an IRA owner or beneficiary who has already received an RMD for 2020 may repay the funds to the distributing IRA by August 31, 2020. The repayment will not be treated as a rollover for purposes of the one rollover per 12-month period limitation or the restriction on rollovers for inherited IRAs under §408.

Finally, the notice provides two sample amendments that employers may use to give plan participants and beneficiaries whose RMDs are waived a choice of whether to receive the waived distribution, as well as 12 Q&As which provide further guidance regarding other issues related to the relief. Importantly, Q&A-3 modifies Notice 2007-7 by specifying that if an employee died in 2019, a non-spouse designated beneficiary has until the end of 2021 (rather than 2020) to make a direct rollover and use the life expectancy rule.

With these changes to RMDs for 2020, an opportunity exists to either skip the RMD or repay the distribution already taken by the deadline in order to reduce taxes. Also, equity values are still slightly negative year-to-date in 2020, so by not taking a distribution you can avoid selling when values are decreased. However, this decision should be reviewed with your trusted advisor taking into consideration your cash needs and alternative sources of funds.

About the Author(s)

Richard P. Mishock, CPA
Rich is a Principal in HBK’s Stuart, Florida office. He has extensive experience in the areas of financial reporting, taxation, business consulting, and audit & assurance. He provides accounting, tax, and consulting services to individuals as well as a wide-range of industries including construction, real estate, manufacturing, wholesale distribution, professional firms, and non-profit organizations.

Michael E. Walston, CPA
Mike Walston is a Principal in HBK's Youngstown office. He has been with HBK since 2013 and has led HBK's Affordable Care Act group since 2015. He focuses on tax compliance and consulting as well as financial statement compilation and review engagements and is a member of the firm's Tax Advisory Group.

Hill, Barth & King LLC has prepared this material for informational purposes only. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.