The IRS has added a twist to the rules for required minimum distributions from retirement accounts—a twist that could benefit you. The IRS announced the change on June 23.
“Anyone who already took a required minimum distribution (RMD) in 2020 from certain retirement accounts now has the opportunity to roll those funds back into a retirement account,” the IRS reports.
The RMD waiver for 2020 is part of the federal CARES Act. The 60-day rollover period for any RMDs already taken this year has been extended to August 31, 2020, allowing taxpayers more time to take advantage of it. Therefore, any RMD taken from January 1 to August 31, 2020, can be put back into a retirement account by the new deadline.
Earlier, the rollover deadline for 2020 was July 15 for RMDs taken between February 1 and May 15.
“This is [a] huge relief from the IRS,” Ed Slott, a certified public accountant and IRA expert in Rockville Centre, New York, told Barron’s. “They really came through big for retirees who took an RMD this year, not knowing they didn’t have to.”
The waiver applies to RMDs from all traditional IRAs, including inherited IRAs and defined contribution plans like 401(k)s.
How an RMD Rollover Works
Barron’s offers the following example of how an RMD rollover might work: A participant received a distribution in January 2020, part of which was treated as ineligible as a rollover because it was considered an RMD. That participant now has until August 31, 2020, to roll over that part of the distribution into another qualified retirement account. If they do so, it will not be treated as taxable income.
Repayments to IRAs will be treated as rollovers for tax purposes and will not be subject to the limit of one rollover every 12 months, Barron’s explains.
Slott told Barron’s that it doesn’t matter how many RMDs you took this year. You can return all of them, as long as you do it by August 31, 2020.
Previously, the CARES Act had enabled any 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 those RMDs this year. The Act included anyone who turned age 70½ in 2019 and would have had to take the first RMD by April 1, 2020. The new waiver does not affect defined benefit plans.
What Can You Do With Your Waived Distribution?
A Roth IRA is one option for allocating the amount of money you took out as an RMD but want to return to a retirement account. The attractiveness of this option depends on your financial situation. Roth IRAs don’t have RMDs. A Roth IRA also offers flexibility with withdrawals.
Another option to consider: Use the money from your RMD to fund a Self-Directed IRA backed by the power of precious metals like gold and silver. Precious metals have been shown over time to help protect wealth from a weakening dollar and the far-reaching consequences of inflation.
Want to roll back your RMD to purchase precious metals for your retirement account? We can walk you through the process. Call U.S. Money Reserve to get started.