Qualified retirement plans such as 401(k) plans and IRAs are subject to required minimum distribution (“RMD”) rules. The CARES Act, passed on March 27, 2020, contained a provision that said no minimum distributions were required for calendar year 2020 from such plans. Unfortunately, many people had already withdrawn their RMD in January or February and had no way to put it back in since the 60-day “rollover” window had closed for them.
In recognition of this issue and the unfairness of it to those who had taken distributions early in the year, the IRS recently issued a Notice that provided for relief in these situations. According to the Notice, individuals now have until August 31, 2020 to rollover any RMD that was received in 2020. (Any amounts received that were in excess of the required minimum amount are not eligible for rollover treatment.) You should note that the gross distribution is the amount that should be rolled over, not the amount that is net of tax. For instance, if you were required to take a $50,000 RMD, but $10,000 was withheld for taxes, so you only got $40,000 net – you would want to return the entire $50,000 RMD, not just the $40,000 cash received.
If you received an RMD from your retirement account in 2020 and are able to return that money to your plan, that may be tax advantageous to you. Please consult your Smith Leonard tax advisor to help you with this analysis.
