IRS Extends 2020 RMD Relief Waivers - Adviser Investments

IRS Extends 2020 RMD Relief Waivers

July 10, 2020

Two weeks ago, we briefly discussed the IRS notice that offered relief to anyone who took a required minimum distribution (RMD) early in 2020—extending and expanding on a CARES Act waiver that gave people additional time to return that money to retirement accounts, penalty-free.

Here’s a little more detail on the key provisions and some financial planning moves to consider:

  1. 2020 RMDs Deadline Extended to August 31. The CARES Act waived RMDs from qualified accounts for 2020. If you took all or a portion of your RMD early, however, you were bound by the 60-day rollover rule, which states that you can only repay a distribution within a 60-day window. The rule was initially relaxed to allow distributions taken between February 1 and May 15 to be repaid by July 15. Now, early birds who took their RMDs in January can also repay that money by the end of August.
  2. Rollover Paradise. In a normal year, the repayments above would count as a rollover, and you are only allowed one in any 12-month period; inherited IRA beneficiaries are usually not allowed rollovers at all. The new IRS notice waives those rules, regardless of whether you’ve already done a rollover in the past year or are a beneficiary of an inherited IRA. Everybody who wants a rollover can do one this year before the August 31, 2020 deadline.
  3. Or, Keep the Money. The IRS’ update and the CARES Act offer taxpayers more flexibility this year. For some readers, it may make more sense to keep the distributions you took—this is especially true if you have endured a job loss or a reduction in salary.
  4. A Good Time to Consider a Roth IRA. The IRS’ ruling also means that 2020 could be a good year to do a Roth IRA conversion, something that your RMD normally wouldn’t factor into. This year, you can instead choose to convert a portion or all of those RMD funds to Roth IRA assets and pay the taxes now (preferably at a lower rate). Future growth, earnings and distributions will then be tax-free. (For more about Roth IRAs, check out our podcast on the topic by clicking here.)

With rules and legislation changing in response to the pandemic’s hardships, there’s no better time to talk to your wealth management team or a tax professional about what’s best for you right now. We’ll continue to provide details on the changes as they roll in. Please don’t hesitate to contact us with any specific questions as they apply to your situation. We’re here for you.


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