According to the Internal Revenue Service, IRA owners, beneficiaries or workplace retirement plan participants who received a Required Minimum Distribution (RMD) this year have until August 31 to rollover or repay the distribution to avoid paying taxes.
The Coronavirus Aid, Relief, and Economic Security Act, or 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 70½ 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 Aug. 31, 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 doesn’t apply to qualified defined benefit plans.
Please contact your Somerset advisor at 317-472-2200 or with any questions.