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2020 RMDs Can Be Paid Back By Rollover

From Lee Sherbakoff,
The Nalls Sherbakoff Group, LLC.

Dear Friends,

The IRS has extended the rollover deadline for required minimum distributions (RMDs) taken from IRAs or company plans in 2020.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act – better known as the CARES Act – was signed into law by President Trump. The CARES Act provision that may have the biggest financial impact is the suspension of 2020 Required Minimum Distributions (RMDs).

(In a normal year, an RMD is the amount of money that must be withdrawn from a traditional IRA, SEP, or SIMPLE individual retirement account (IRA) by owners and qualified retirement plan participants of retirement age. The annual RMD must be withdrawn and taxes paid on the amount withdrawn regardless whether you need or want the annual distribution. Further, RMDs were not eligible to be rolled over into another retirement account.)

On Monday, June 23, 2020, the IRS issued Notice 2020-51 regarding the waiver and rollover of 2020 RMDs. Any RMDs that had been made for 2020 could be treated as eligible for rollover. So now, any unwanted 2020 RMD can be repaid via rollover to an IRA or company plan by August 31, 2020.
The CARES Act did not waive the 60-day rollover window, and since the CARES Act was not enacted until March 27, 2020, rollovers made early in the year may have fallen outside that window. The IRS addressed this issue in Notice 2020-51 by extending the rollover window for all previously paid 2020 RMDs to August 31, 2020.

Notice 2020-51 also allows 2020 RMDs paid as substantially equal periodic payments to be rolled over. So, if you have been taking monthly RMD distributions, those too can be rolled over and not counted as taxable income for this year. In addition, the once-per-year rollover rule prevented those receiving monthly RMDs from rolling over more than one monthly RMD. Now, if rolling to an IRA, these rollovers will not count for the one-rollover-per-year limit, so, yes, multiple RMDs taken this year may be rolled over to another IRA or company plan by August 31, 2020.

Notice 2020-51 applies to RMD payments only. Withdrawals of non-RMD funds are still bound by the usual 60-day rollover deadline (or the July 15, 2020 deadline for distributions made after January 31, 2020). In addition, distributions of amounts other than RMDs are still subject to the once-per-year rollover rule.

Additional guidance may be forthcoming from the Treasury, IRS or DOL. In addition, Congress may pass additional COVID-19 relief packages that may include provisions affecting retirement plans. As always, we will keep you apprised of any new developments.

Stay safe and stay well.

The Nalls Sherbakoff Group, LLC

DISCLOSURES: The information provided in this letter is for general informational purposes only and should not be considered an individualized recommendation of any particular security, strategy or investment product, and should not be construed as investment, legal, or tax advice. The Nalls Sherbakoff Group, LLC makes no warranties with regard to the information or results obtained by third parties and its use and disclaim any liability arising out of, or reliance on the information. These indexes reflect investments for a limited period of time and do not reflect performance in different economic or market cycles and are not intended to reflect the actual outcomes of any client of The Nalls Sherbakoff Group, LLC. Past performance does not guarantee future results.