TAXING MATTERS
T. MARK RUSH, CPA
Partner
Ham, Langston & Brezina, LLP
[email protected]
ACT NOW: IRS Creates New
Path for Undoing RMDs
With the CARES Act, Congress decided
to waive all 2020 required minimum
distributions (RMDs).
What if you already took out
your annual RMD before Congress
changed the law?
The IRS just granted you brand-new mercy to fix the
issue, but you need to take action before August 31,
2020.
2020 RMD Waiver
The CARES Act waived all 2020 RMDs for IRAs and
defined contribution plans. This waiver applies to your
RMD if you
• turned age 70.5 during tax year 2019 and had to take
your first RMD by April 1, 2020, and waited until 2020
to take it;
• turn age 72 during tax year 2020 and have to take
your first RMD by April 1, 2021; or
• inherited an IRA or retirement account and have to
take an RMD for tax year 2020.
Relief Provided
Let’s say you did not know about the waiver and
you took your RMD. You want to put it back and avoid
paying taxes on it. You have two ways to undo your
2020 RMD:
• Do an indirect rollover to another account, or
• Repay the funds to the same account.
Indirect rollover. You generally have 60 days from the
distribution date to complete an indirect rollover. But
in Notice 2020-51, the IRS extends this indirect rollover
deadline so that you have until August 31, 2020, for
RMD distributions you took earlier in tax year 2020.
As a reminder, you can’t do an indirect rollover from
an inherited non-spousal IRA. Instead, to avoid being
taxed on your RMD, you have to use the repayment
method.
Repayment. You can repay the RMD to the original
account by August 31, 2020 and pay no tax on it. And
when you make this repayment under Notice 2020-51, it
doesn’t count as the “one” indirect rollover per year that
you can use.
Important note. These rules apply only to RMD
amounts distributed (taken out of the IRA). Any amounts
you took out exceeding your RMD amount aren’t
eligible for relief.
Example. Jo-Ann had a $4,000 RMD requirement for
her traditional IRA for tax year 2020 and took out $5,000
on January 15, 2020.
Jo-Ann has two options:
1. Jo-Ann can put $4,000 in another traditional IRA by
August 31, 2020, or
2. Jo-Ann can put $4,000 back into the same traditional
IRA by August 31, 2020.
In either scenario, Jo-Ann must pay tax on the $1,000
she took above and beyond her RMD amount.
28 MOMENTUM