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On Tuesday, June 23, the Internal Revenue Service announced that anyone who took a required minimum distribution (RMD) in 2020 now has the opportunity to roll those funds back into their IRA or retirement account by August 31, 2020 to avoid having the income taxed in 2020.
The CARES Act that was enacted on March 27, 2020 suspended the RMDs from tax-deferred 401(k) and individual retirement accounts that retirees or beneficiaries of these plans otherwise would have been required to take in 2020.
Taxpayers who initiated these distributions between February 1 and May 15 were allowed to reverse those distributions until July 15. Alternatively, some relied upon an existing law that allowed re-contributions within a 60-day window period. But, for those who took RMDs in January, the deadline for that option had already expired. Those who missed this 60 day window or took distributions after May 15 can now take advantage of this new guidance from the IRS. Also, you can return the funds to any tax deferred account, not necessarily the same tax deferred account from which the funds were distributed.
The notice provides that such repayments to an IRA are not subject to the one rollover per 12-month period limitation or the restriction on rollovers for inherited IRAs.
If funds were withheld from the RMD for federal or state taxes, taxpayers must return the amount of the gross distribution in order to avoid taxation of those amounts. Such taxes withheld will still be applied against the 2020 tax liability but if they exceed the 2020 tax liability a refund would not be available until the 2020 tax return is filed in 2021.
Please reach out to any member of your Beacon team for guidance on this change to the 2020 RMD requirements and if you would like, coordination to re-deposit the funds into one of your tax deferred accounts that we manage.
Your Beacon Tax Team