On June 23, 2020, the IRS released Notice 2020-51 “Guidance on Waiver of 2020 Required Minimum Distributions,” effectively allowing anyone who took an unwanted Required Minimum Distribution (RMD) to redeposit that money back into their retirement plan account by Aug. 31, 2020. This is excellent news for those who had previously been excluded from being able to put their distributions back, and exactly the fair and just action we were hoping to get from the IRS. How often do you get to say that?
When the CARES Act passed in March 2020, section 2203 of that legislation granted a waiver of RMDs from certain defined contribution plans and individual retirement accounts (IRAs). While this was good news for those who had yet to take their 2020 distribution, the question remained about what to do if you had taken the RMD earlier in the year. At that time, there were limited options for getting the funds back into the retirement account. You could consider the distribution a 60-day rollover, meaning you had 60-days from the date of the distribution to redeposit the funds. If you met certain specific criteria, you could classify the distribution as a coronavirus-related distribution up to $100,000, and repay the IRA or other retirement plan account within three years. That was all well and good, but for those that were more proactive and took their distributions early in the year, or those with inherited IRA accounts, the 60-day rollover rule didn’t help. Unless you qualified for the coronavirus-related distribution, you were out of luck.
On April 9, the IRS expanded the guidance with the release of Notice 2020-23, which gave those who took distributions after February 1 until July 15, 2020, to return the funds to the retirement account. That helped a few more people get their unwanted distributions back to the IRA and avoid the taxation of those funds. But what about the people who took distributions in January? Or those that took RMDs from inherited IRAs for which 60-day rollover transactions are generally specifically prohibited?
There was also some grey area around the once-per-year rule, which could have precluded you from rolling back distributions if you had used any other such 60-day rollover within the past 12 months. We debated on this forum whether or not a series of distributions being rolled back in at the same time would violate the once-per-year rule. Notice 2020-51 clears up all of the remaining grey area associated with putting unwanted RMDs back into the account by allowing any distributions for 2020 that would have been Required Minimum Distributions (including those with required beginning dates in 2019 who delayed the first RMD until April 1, 2020) if not for the CARES Act waiver, to be rolled back into the retirement plan by Aug. 31, 2020, disregarding the once-per-year rule, and the limitation for non-spouse beneficiary inherited IRAs.
This should be good news to many of you who felt you were being penalized for proactively taking your distribution early. We are glad the IRS has decided to do the right thing and clear up these outstanding questions.
Meanwhile, if you have questions on returning your 2020 RMDs to your retirement accounts, contact the Experts at Henssler Financial: