The CARES Act allows for the waiver of mandated 2020 Required Minimum Distributions (RMDs) from most retirement accounts, including IRAs, 401(k)s and 403(b) plans. Additionally, the waiver applies to individuals who own inherited retirement accounts subject to RMDs.
Many individuals jumped at the opportunity to waive their RMDs for 2020 thus avoiding additional taxable income for the year and allowing the funds to continue to grow in the retirement account. However, what about those individuals who already took the RMDs at the beginning of the year before the passage of the CARES Act or before they knew they could waive the RMDs for 2020? On June 23, 2020, The IRS announced that anyone who already took a required minimum distribution in 2020 from certain retirement accounts has the ability to roll those funds back into a retirement account by August 31, 2020. In addition the IRS’ notice also provides that the repayment of the 2020 RMDs is not subject to the one rollover per 12-month period limitation and the restriction on rollovers for inherited IRAs.
So what does this mean? If you have taken all or some of your 2020 RMDs, then the IRS is allowing you to re-contribute that amount back to your retirement account. For example: if you had your IRA automatically setup to distribute an equal amount each month to satisfy the RMD requirements, you could stop the automatic distribution for the remainder of 2020 and re-contribute the total amount already distributed for 2020 to your retirement account.
The IRS’ Notice does state that the ability to re-contribute RMDs does not apply to defined benefits plans such as pension and those taking substantially equal periodic payments under Internal Revenue Code 72(t). If you have questions regarding the re-contribution of 2020 RMDs you should contact your financial advisor or tax preparer.
To read the IRS Notice 2020-51 click on this link: https://www.irs.gov/pub/irs-drop/n-20-51.pdf
Making sure your estate planning and retirement planning work together is essential. The attorneys at Severns & Howard can review your estate plan, as well as work with you and your financial advisor to ensure that your investments and estate plan fulfill all of your needs and wishes for your future. To schedule an appointment with a Severns & Howard attorney to begin these important discussions, please contact our office to schedule a free 30-minute intake call with our intake paralegal Alesha Dugger at (317) 817-0300.