IRS Announces Complete Relief for 2020 Required Minimum Distributions (RMD)
The IRS announced on Tuesday, June 23, 2020 (in IRS Notice 2020-51) that any individual who previously took a required minimum distribution (RMD) in 2020 from their traditional IRA and/or qualified retirement accounts – this includes the Thrift Savings Plan (TSP) – now has the opportunity to rollover these funds back into a retirement account.
The waiver of RMDs from retirement accounts was a result of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was signed into law on March 27, 2020. Affected individuals have until August 31, 2020 (previous deadline was July 15, 2020) to perform a rollover and return any unwanted 2020 RMDs into their traditional IRAs or qualified retirement accounts.
To fully understand the implications of IRS Notice 2020-51, it is important to review the RMD waiver resulting from the CARES Act passage and subsequent IRS guidance on the RMD waiver for 2020.
RMD Waiver for 2020
The RMD waiver for 2020 applies to traditional IRAs and qualified retirement plan accounts (401(k), 403(b), 457(b) retirement plans, the TSP, SEP and SIMPLE retirement plans). The waiver also applied to any individual who became age 70.5 during 2019 (and whose first RMD was for 2019) and had until April 1, 2020 to take their first RMD.
As of March 27, 2020, this individual had not taken the first RMD. The CARES Act also waived a 2019 RMD due before April 1, 2020.
Prior passage of the CARES Act, there were individuals over age 70.5 who took their 2020 RMDs (or at least a portion of their 2020 RMD) in January, February, or in early March 2020.
The question then became: Can these pre-CARES Act RMDs be “returned” (rolled back) to the traditional IRA or to the retirement account from where they came? Another question: Can pre-CARES Act withdrawn and taxed RMDs be transferred into a Roth IRA?
The IRS previously announced, earlier in 2020, that any RMDs from inherited (“death”) IRA accounts cannot be transferred or rolled over to any type of retirement accounts.
IRS RMD Guidance
In IRS Notice 2020-23 issued in April 2020, the IRS provided guidance regarding relaxed rollover restrictions. The IRS explained that any individual who took an RMD between February 1 and May 15, 2020 had until July 15, 2020 to rollover an RMD payment. But any RMDs received in January 2020 and after May 15, 2020 had a strict 60-day rollover deadline.
In addition to the expanded rollover opportunity as explained in IRS Notice 2020-23, the IRS reminded individuals who had taken their 2020 RMDs that the “once-per-year” rollover rule also still applied. In particular, if another IRA-to-IRA rollover was done within the previous 365 days, then an IRA RMD could not be rolled over into an IRA.
This means that if an individual received monthly payments from their IRA and/or qualified retirement account in order to fulfill their RMD for 2020, only one RMD can be rolled over back into an IRA.
Note that rollovers from employer-sponsored retirement plans such as the TSP to IRAs and vice versa do not count toward the once-per-year rule.
A helpful example
The following example illustrates:
Ginger, age 73, is a federal annuitant who owns both a TSP account and a traditional IRA. Both accounts are subject to RMD. Ginger withdrew half of her RMD for each account in early February 2020, and the other half of her RMD for each account in early March 2020.
The CARES Act waives 2020 RMDs, so Ginger would like to rollover the four RMDs payments into an IRA. The once-per-year rule allows Ginger to rollover only one of these RMDs. But Ginger could rollover the three remaining RMDs into her traditional TSP account (via Form TSP-60).
As a general rule, nonspousal inherited (“death”) IRA RMDs cannot be rolled over. This rule is unaffected by the rollover relief in IRS Notice 2020-23. This means that until June 23, 2020, RMDs from both inherited (“death”) traditional IRAs and inherited (“death”) Roth IRAs cannot be returned or rolled over.
On June 23, 2020, in IRS Notice 2020-51, the IRS announced that any individual who already took a RMD at any time during calendar year 2020 (not restricting RMDs to those taken between February 1 and May 15, 2020) from a qualified retirement account, a traditional IRA and an inherited (“death”) traditional IRA (this is a change from the existing rule of not allowing a rollover of an inherited traditional IRA RMD) or an inherited Roth IRA (this is a change from the existing rule of not allowing a rollover of an inherited Roth IRA RMD) has the opportunity to roll these funds back into a retirement account.
The 60-day rollover period for any RMDs already taken in 2020 has been extended to August 31, 2020. This extension of nearly six weeks allows individuals additional time to take advantage of this opportunity. In short, all RMDs can be rolled over and the “once-per-year” IRA rollover rule is waived for all RMDs taken in 2020.
Those federal annuitants who are over age 70, who previously received their 2020 TSP RMDs and who did not (or could not rollover because the RMDs were taken during January 2020) rollover their RMDs may now do so (until August 31, 2020). They may rollover their traditional TSP RMD to a traditional IRA and rollover their Roth TSP RMD to a Roth IRA. Traditional TSP RMDs can also be rolled over to the traditional TSP via Form TSP-60.
It must be emphasized that the IRS guidance provided in IRS Notices 2020-23 and 2020-51 applies only to RMDs. Non-RMD oriented withdrawals of IRA funds are still bound by the “once-per-year” rollover rule.
SECURE Act Note
At the end of 2019 the SECURE Act was signed into law. One of the biggest changes resulting from this was the RMD age. Prior to 2020, the first RMD had to be taken at age 70 ½. With the passage of the SECURE act, that age is now 72. So if you did not turn 70 ½ prior to 2020, you would not need to take your first required minimum distribution this year, anyhow. You have until you reach age 72.
CLICK HERE to schedule a no-obligation 15-minute appointment.