In June 2020, the IRS announced an important change for those in retirement or nearing retirement. The agency said that anyone who took a required minimum distribution (RMD) from certain retirement accounts could roll over those funds back into a retirement account.
A key wrinkle to this change: The IRS imposed an August 31, 2020, deadline for carrying out an RMD rollover. With a short amount of time before that deadline comes around, learn now about how to return RMDs, suspend RMDs, and make penalty-free distributions.
On June 23, the IRS unveiled RMD waivers permitted under the federal CARES Act, a law aimed at providing economic relief to Americans.
The CARES Act lets an IRA owner or beneficiary who has already received a 2020 RMD from a traditional IRA return the distribution to an IRA by August 31, 2020, without any tax penalty. In fact, returning the distribution could improve your tax situation by reducing your taxable income for 2020, The Street reports.
The repayment does not fall under the normal limit of one rollover per 12-month period or the restrictions on rollovers for inherited IRAs.
This means an RMD taken anytime from January 1 to June 30, 2020, can be returned to a retirement account by the new (August 31) deadline. Previously, the rollover deadline for 2020 was July 15 for RMDs taken between February 1 and May 15.
The CARES Act also enables a taxpayer with an RMD due in 2020 from a defined-contribution retirement plan, including a 401(k) plan, 403(b) plan, or IRA, to skip the RMD this year. The waiver includes RMDs for people who reached 70½ in 2019 and took their first RMD in 2020, according to 401(k) Specialist.
Furthermore, the Act allows eligible participants in certain tax-advantaged retirement plans, including traditional IRAs, to take an early distribution of up to $100,000 in 2020 without paying a 10% penalty tax on most retirement account withdrawals before the account owner is 59½, Forbes.com notes. The $100,000 limit is per person, regardless of how many retirement accounts they have.
What Can You Do With Your RMD Rollover?
A Roth IRA is one option for allocating the amount of money you took out as an RMD but want to put back into a retirement account. Roth IRAs don’t have RMDs for original owners, however, inherited owners are subject to RMD rules.
An alternative: Use the money from your RMD to set up a self-directed IRA backed by precious metals like gold and silver. Precious metals have been proven over time to help protect wealth from currency weaknesses and inflationary pressures.
Whatever you decide to do, don’t delay. Via CNBC, CPA Ed Slott advised starting the RMD rollover process by August 20.
“If there is even a remote chance that you may want to ‘undo’ a distribution made earlier in 2020, be sure to ‘undo’ it before the deadline. This will give you more time to do multiyear financial planning to help decide if a distribution in 2020 is a beneficial strategy,” CPA Julie Welch said.
Slott stressed that the RMD waiver is only for 2020. You don’t have to take two RMDs in 2021 to “catch up.”
Are you interested in doing something a little different with your IRA? Contact a U.S. Money Reserve Account Executive to learn how you may be able to incorporate precious metals into your retirement plans.