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IRS Overrides Rules That Prevented Rollovers of Waived 2020 RMDs


The IRS has gotten creative with allowing retirement account owners to roll over waived 2020 RMDs that seemed ineligible to be rolled over. Those who qualify need to act by August 31, 2020 to benefit.

As part of the relief provided for financial adversity resulting from COVID-19, the Coronavirus Aid, Relief, and Economic Security (CARES) Act waived required minimum distributions (RMDs) for 2020.

However, the CARES Act was signed into law on March 27, 2020; and by then, many RMD-eligible taxpayers had already taken distributions that would have been RMD amounts had it not been for the CARES Act. The CARES Act permits rollover of these amounts; but, because of time and frequency limitations, some distributees were unable to take advantage of the rollover provision.

The Internal Revenue Service (IRS) provides guidance in Notice 2020-51 which includes solutions that remove these limitations.


There are several applicable rules that the IRS takes into consideration under Notice 2020-51. These include:

Required minimum distributions for 2020

Owners of traditional IRAs (including SEP IRAs and SIMPLE IRAs) who were at least age 70½ on December 31, 2019 were required to take RMDs from their traditional IRAs for 2020. For those who reached age 70½ in 2019, RMDs were also due for 2019 but could have been taken as late as April 1, 2020.

The RMD requirements also apply to employer-sponsored retirement plans (defined contributions, defined benefit, 403(b), and governmental 457(b) plans). However, if the plan permits, RMDs can be deferred past age 70½ until retirement for eligible participants.

For beneficiary retirement accounts including Roth IRAs, RMDs applied for 2020—if 2020 was the final year of the five-year period for any beneficiary subject to the 5-year rule, and for any beneficiary taking distributions under the life-expectancy rule where the account was inherited in 2019 or earlier.

Waiver of required minimum distributions for 2020

The CARES Act waived RMDs for IRAs and defined contribution plans for 2020. This includes RMDs due for 2019 that were deferred past 2019 and would have therefore been required to be distributed by April 1, 2020.

RMDs were not waived for defined-benefit plans.

Increase in RMD age

One of the provisions included in the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 is the increase in the beginning age for RMDs from 70½ to 72, for those who reach age 70½ after 2019. Under this provision, the first RMD is now due for the year in which the individual reaches age 72.

For employer-sponsored retirement plans that permit deferral of RMDs past age 72 until retirement, the first RMD is due the later of the year in which the individual reaches age 72, or the year of retiring from working with the plan sponsor.

RMDs due for the first RMD year can be deferred until as late as April 1 of the following year. This April 1 deadline is the account owner’s required beginning date (RBD).

IRS solutions for limitations that prevented rollover of waived RMD amounts

RMDs are not eligible for rollover. However, because RMDs are waived for 2020, amounts that would have been RMDs—had it not been for the CARES Act—are eligible to be rolled over.

Still, there are existing rules that would have prevented some taxpayers from being eligible to roll over these amounts. The following is an explanation of how the IRS’s guidance in Notice 2020-51 allows affected individuals to get around some of these limitations.

1. Including transitionary rules for the new SECURE Act RBD

A participant in an employer-sponsored retirement plan who retired from working with the plan sponsor in 2020, and reached age 70½ before 2020, would have a first RMD year for 2020 if the plan permitted deferral of RMDs past age 70½.

Such an individual would have an RBD of April 1, 2021.

For such an individual, any amount that would have been a 2020 RMD but for the CARES Act—whether paid in 2020 or 2021—is eligible to be rolled over. This includes amounts paid under a substantially equal periodic payments program, as described in Number 2, below.

Note: This does not apply to IRAs.

2. Permitting rollover of substantially equal periodic payments

A distribution from an employer-sponsored retirement plan may be rolled over only if the amount is an “eligible rollover distribution,” as defined under the tax code. Amounts that are not eligible rollover distributions include:

  • Distributions made upon hardship of an employee,
  • Required minimum distributions, and
  • Distributions that are part of a series of substantially equal periodic payments (not less frequently than annually) made for:
    1. the life (or life expectancy) of the employee or the joint lives (or joint life expectancies) of the employee and the employee’s designated beneficiary, or
    2. a specified period of 10 years or more.

Plan participants who receive substantially equal periodic payments are permitted to roll over such amounts that, had it not been for the CARES Act, would have been RMDs for 2020—whether distributed in 2020 or 2021; and substantially equal periodic payments for 2021 that are in excess of 2021 RMD amounts.

Note: This does not apply to IRAs.

3. Extending the 60-day deadline to August 31, 2020

Distributions from retirement accounts are includible in the account owner’s income unless an exception applies. One exception is if the amount is eligible to be rolled over and is rolled over within 60 days of receipt.

The IRS has the authority to waive the 60-day deadline “where the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to such requirement.” That authority was used in Notice 2020-23 to postpone the 60-day deadline to July 14, 2020, for rollovers for which the 60-day deadline fell on April 1, 2020 through to July 14, 2020.

This did not cover distributions that were taken in January.

Notice 2020-51 closed the gap by extending the deadline to August 31, 2020 for amounts that would have been RMDs from employer-sponsored retirement plans and IRAs, had the SECURE Act not increased the RMD starting age from 70½ to 72 and had the CARES Act not waived RMDs.

Rollover contributions for which the 60-day period ends after August 31, would be required to be rolled over within 60 days of receipt, unless the account owner qualifies for a waiver.

Note: This covers both IRAs and employer-sponsored retirement plans.

4. Using the repayment method to sidestep the one-per-year IRA-to-IRA rollover rule

An individual who takes a distribution from an IRA and rolls over the amount to the same type of IRA (traditional to traditional or Roth to Roth), may do so only once during a 12-month period. This created complications for IRA owners who split what would have been their RMDs into more than one distribution, as only one of those distributions was permitted to be rolled over to the same type of IRA from which the distribution was made.

Unlike the 60-day rollover deadline for which the IRS has the authority to provide a waiver or postponement; the IRS has no authority to waive the one-per-year limitation on IRA-to-IRA rollovers. But under Notice 2020-51, this limitation does not apply to a repayment.

One of the definitions of a repayment is a rollover of a distribution from an IRA that would have been an RMD had it not been for the CARES Act, where the rollover is made to the same IRA from which the distribution was made. Under this provision, the repayment must be made by August 31, 2020.

Note: This applies only to IRAs.

5. Using the repayment method to bypass the restrictions of nonspouse beneficiary rollovers for IRAs

Except for a direct rollover of inherited amounts from an employer-sponsored retirement plan to a beneficiary IRA, a nonspouse beneficiary may not roll over distributions from an inherited retirement account.

Under IRS Notice 2020-51, the repayment exception is applied to beneficiary IRAs. Under this exception, returning a nonspouse beneficiary distribution to the same beneficiary IRA from which the distributions were made are considered repayments and not subject to the prohibition on rollovers of distributions made by nonspouse beneficiaries.

This too, is treated as a repayment that is not subject to the one-per-year rollover limitation.

Note: This applies only to beneficiary IRAs held by nonspouse beneficiaries.

Be careful: These are for RMDs only

These waivers and exceptions apply only to RMD amounts. If a taxpayer took a distribution that was in excess of what they would have taken had it not been for the waivers, the waivers and exceptions do not apply to the amounts in excess of the RMD amounts.

Check with your financial planner

Not everyone who took distributions will want to roll over those amounts. But if you wanted to and felt you were left twisting in the wind, you may appreciate these newly extended opportunities.

Time is of the essence! August 31, 2020 is just around the corner, and those who want to repay or roll over RMDs should act now. Be sure reach out your financial planner as soon as you can.

Don’t hesitate to contact RJG Financial & CPA Services today via email or call 856-914-1449 with any questions or concerns you have about your retirement planning, retirement income, and tax planning options.

RJG Financial & CPA Services focuses on providing education and information to help you understand income and CPA guided tax planning as you prepare for retirement.

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