Important Update of the “CARES Act” and RMDs

There is important news for those who took RMDs (Required Minimum Distributions) earlier this year. The CARES Act, which stands for Coronavirus Aid Relief and Economic Security Act, waived the RMDs for 2020 for those distributions made on or after February 1, 2020. That left open the question of how RMDs taken in January of 2020 would be treated.

The answer has come on June 23, 2020, in IRS Notice 2020-51, 2020-29 I.R.B. The IRS in this notice has waived RMDs for the entire year of 2020 and has waived the 60 day period for rolling RMDs back into the participant’s IRA or 401k. Under the Notice, the CARES Act waiver for participants, that is owners of the IRA, have until August 31, 2020, to roll their distribution back into an IRA.

And, under the Notice, beneficiaries of IRAs who took their RMD in 2020 can roll their distribution tax-free to an IRA by August 31, 2020. Under current law an RMD from an inherited retirement plan cannot be rolled over.

Those who take RMD monthly or periodically also receive relief. The “once every twelve month limit” on rollovers has been waived for 2020 allowing those participants or beneficiaries on inherited IRAs the ability to roll part or all of their RMDs back into the IRA.

This presents opportunities for those who have taken their RMD in a lump sum or periodically throughout the year and have paid in estimated tax on the RMD to roll the RMD back into an IRA and then convert the equivalent of the RMD to a Roth.

Feel free to contact Earl Cohen at [email protected] with any questions on these or other IRA planning issues.