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Deadline for RMD Rollback Under CARES Act is August 31

August 25, 2020

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Taxpayers who have already taken their required minimum distribution, RMD, for 2020, have the option for an RMD Rollback under the CARES Act if taken by August 31, 2020. The intention of this option is to provide tax relief for those who took their required RMD prior to the Coronavirus Aid, Relief, and Economic Security (CARES) Act becoming law on March 27, 2020 and wish to ‘undo’ their action.

What Did the CARES Act Change in Regard to RMDs?

With the intention of providing valued tax relief during the COVID-19 pandemic, the CARES Act waived RMDs for 2020. As a result of the waived requirement, taxpayers who do not need to take the required distribution would not need to make the withdrawal and pay the required taxes on the deferred retirement money. In the case of taxpayers who would be pushed into a higher tax bracket by the withdrawal of the funds, the tax relief could be especially meaningful.

Who May Be Affected by the RMD Waiver?

As a taxpayer, if you are age 72, or if you are age 70½ and became that age prior to 2020, Internal Revenue Code requires you to withdraw minimum distributions (RMDs) from many types of retirement accounts.

Owners of certain retirement accounts in 2020, beneficiaries of inherited retirement accounts (such as IRAs) in 2020, and owners of certain retirement accounts who deferred 2019 RMDs to 2020, may be in a position to benefit from changes resultant from the CARES Act.

As stated in a PLANSPONSOR article by John Manganaro, “That law (Notice 2020-51) enables any taxpayer with an RMD due in 2020 from a defined contribution (DC) retirement plan—including a 401(k), 403(b) or IRA—to skip those RMDs this year. This includes anyone who turned age 70.5 in 2019 and would have had to take the first RMD by April 1, 2020.”

Why Is an RMD Rollback Offered?

Although the CARES Act provision waiving RMDs this year is beneficial, it did not make allowances for taxpayers who might have already taken their required RMD for 2020.

Normally a taxpayer’s RMD is subject to a 60-day rollover period and a once-per year rollout rule, which means that once the money is withdrawn, it cannot be returned to the retirement account without a penalty. Any taxpayer taking an RMD prior to February 1, 2020 was outside the 60-day rollover period.

As we have all witnessed, the quickly implemented CARES Act has needed adjustments and clarifications for a number of topics. Recognizing the discrepancy in guidelines regarding the rollback of required minimum distributions, the IRS issued Notice 2020-51, establishing a retroactive rollback window for those who might have taken their 2020 distribution prior to execution of the CARES Act.

Bottom line: If you took your RMD before the CARES Act waiver went into effect, you have the option to put it back before August 31, 2020 without paying fees or penalties.

Two important stipulations to remember:

  • If the taxpayer took more than the RMD for the account, and/or was under qualifying age, the rollback opportunity does not apply.
  • Also, if the taxpayer wishes to keep the distribution, then no rollback is necessary or applicable.

Additional insights: IRS announces rollover relief for required minimum distributions from retirement accounts that were waived under the CARES Act

#retirementplan #rmdrollback #definedcontribution

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Any tax advice contained herein is of a general nature. You should seek specific advice from your tax professional before pursuing any idea contemplated herein.

Securities offered through Lion Street Financial, LLC (LSF) and Valmark Securities, Inc. (VSI), each a member of FINRA and SIPC. Investment advisory services offered through Lion Street Advisors, LLC (LSA) and Valmark Advisers, Inc. (VAI), each an SEC registered investment advisor. Please refer to your investment advisory agreement and the Form ADV disclosures provided to you for more information. VAI/VSI and LSF/LSA are non-affiliated entities and separate entities from OneDigital and Fulcrum Partners.

Unless otherwise noted, VAI/VSI, LSF/LSA are not affiliated, associated, authorized, endorsed by, or in any way officially connected with any other company, agency or government agency identified or referenced in this document.

Lion Street Advisors // Lion Street Financial

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