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2020 RMD Waiver: Rollover Guidance Received

Aug 27, 2020

The IRS recently provided more guidance on the 2020 required minimum distribution (RMD) waiver. The long-awaited guidance—Notice 2020-51—grants relief for those IRA owners who took distributions that were intended to be 2020 RMDs—before the 2020 RMD waiver was granted—and requires IRA trustees and custodians to notify IRA owners that no RMD is due for 2020.

RMD Waiver

By way of background, the Coronavirus Aid, Relief, and Economic Security (CARES) Act waived 2020 RMDs from IRAs (including Traditional IRAs, simplified employee pension (SEP) IRAs, and SIMPLE IRAs) and defined contribution plans (such as 401(k) and 403(b) plans). The RMD waiver is part of the largest economic relief package in U.S. history, and is intended to help taxpayers whose retirement accounts may have been adversely affected by the economic downturn caused by the coronavirus pandemic.

As a result, retirement plan participants and IRA owners, including beneficiaries, are not required to take a 2020 RMD from their IRAs, inherited IRAs, or defined contribution plans. The RMD waiver also applies to individuals who reached age 70½ in 2019, but did not take their RMD before January 1, 2020. In other words, IRA owners and plan participants who reached age 70½ in 2019 and chose to delay their first RMD payment until April 1, 2020, do not have to take their 2019 or 2020 RMDs.

Issues with the RMD Waiver

Some IRA owners and plan participants had already taken their 2020 RMDs before the waiver was granted by the CARES Act, which was signed by President Trump on March 27, 2020. Now they may want to put the money back. RMDs, by definition, are not eligible for rollover, but because RMDs are waived for 2020, any distributions that an IRA owner or plan participant received in 2020 with the intention that they were to be an RMD, is eligible for rollover.  

Before Notice 2020-51 was issued, IRA owners and plan participants who had taken a distribution in early January, with the intent that it was to be an RMD, were able to roll over their distribution, provided that the other rollover tests were met, such as the 60-day rule and, for IRAs, the one-per-12-month rule: IRA owners who had taken multiple distributions were limited to rolling over only one of the distributions, provided that they had not rolled over a distribution in the preceding 12 months. And, while RMDs are waived for inherited IRAs, IRA beneficiaries were not able to roll over distributions because rollover treatment is denied for inherited IRAs under Internal Revenue Code Section 408(d)(3)(C). This meant that, although 2020 RMDs are waived, some IRA owners had no choice but to keep the intended 2020 RMD received before the 2020 waiver was granted because the distribution was ineligible for rollover.

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Notice 2020-51 Addresses Issues

IRS Notice 2020-51, however, provided welcome relief for individuals in these scenarios.  Issued in June, Notice 2020-51 granted an extension of the 60-day rollover deadline for any distribution that was intended to be an RMD, but for the 2020 RMD waiver, to August 31, 2020. The one-per-12-month rule continues to apply.

Notice 2020-51 also provided relief for IRA owners who have received distributions that were intended to be RMDs—but for the 2020 RMD waiver—that would not be eligible for rollover. These IRA owners are now able to make a repayment of distributions that were intended to be an RMD. As such, IRA owners who have received more than one distribution that was intended to be an RMD are permitted to repay the distributions to the distributing IRA. The deadline for repayment is August 31, 2020. The one-per-12-month rule and the 60-day rule do not apply to these repayments, but the repayment must be made to the distributing IRA.

Nonspouse beneficiaries who have received a distribution from their inherited IRAs are also allowed to repay the RMD to the distributing inherited IRA without violating the restriction on rollovers for nonspouse beneficiaries. August 31, 2020, is also the deadline for repayment by nonspouse beneficiaries.

The deadline extension for RMD rollovers and the ability to repay RMDs to the distributing IRA apply only to the amount of the RMD. Any additional amount distributed may be rolled over, but the 60-day deadline and the one-per-12-month rule would apply. And, after August 31, 2020, the normal rollover rules will apply to any distributions intended to be RMDs, and repayments will no longer be permitted.

At the time of this writing, the IRS had not issued any guidance on how to report RMD repayments. Ascensus recommends that your organization track any repayments of RMDs so that once the IRS does provide reporting guidance, you will be able to report the transactions in accordance with the IRS’ instructions.

Notice 2020-51 also requires that IRA trustees and custodians notify IRA owners that no RMD is due for 2020. Trustees and custodians can do this by furnishing IRA owners with a copy of IRS Form 5498, IRA Contribution Information, to be filed with the IRS, or by sending out their own notice.

Please Note: Provident Trust Group and its affiliates do not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.

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