IRS issues additional guidance on 2020 RMD waivers

On June 23, 2020, the IRS issued Notice 2020-51, which provides guidance on the waiver of 2020 required minimum distributions (RMDs) from individual retirement accounts (IRAs) and individual account retirement plans (defined contribution plans but not defined benefit plans).

We initially discussed the RMD waiver in our March 30, 2020, article, "Required Minimum Distributions Waived for 2020."

In Notice 2020-51, the IRS included several areas of relief, including those summarized below.

As noted in the prior article, if an individual has already withdrawn his or her RMD for 2020 or had withdrawn the first year's 2019 RMD on or before April 1, 2020, the withdrawn amount may be rolled back within 60 days of the distribution to (a) the retirement plan from which it came (if the plan accepts rollbacks) or (b) an IRA. If the withdrawal had been from an IRA the withdrawn amount must be rolled back to the distributing IRA.

Of concern was the fact that more than 60 days may have passed since the individual had withdrawn the RMD and was therefore prohibited from rolling back the RMD to a retirement plan or IRA.

In Notice 2020-51, the IRS extended the 60-day deadline until the later of (a) 60 days from the date of distribution or (b) August 31, 2020.

For example, if you withdrew your 2020 RMD on January 15, 2020, you now have until August 31, 2020, to roll that distribution back to the plan from which it came (if the plan accepts rollbacks) or to an IRA.

RMD ROLLBACKS BY NON-SPOUSE BENEFICIARIES

The general rules under the Internal Revenue Code prohibit a non-spouse beneficiary under an inherited IRA, or a non-spouse beneficiary of a deceased participant in a retirement plan, from making tax-free rollovers to an IRA or retirement plan.

In Notice 2020-51, the IRS is also permitting a non-spouse beneficiary to roll back his or her 2020 RMD to a retirement plan (if the plan accepts rollbacks) or an IRA, by the later of 60 days from the date of distribution or August 31, 2020.

For example, if you are a non-spouse beneficiary under an inherited IRA and withdrew your 2020 RMD on March 1, 2020, you will have until August 31, 2020 to roll back the distribution to the same IRA.

WAIVER OF ONE IRA ROLLOVER PER 12-MONTH PERIOD

There is another rule contained in the Internal Revenue Code that prohibits an individual from making a rollover of a distribution from an IRA to another IRA if the individual:

• had received a distribution from an IRA, and

• rolled it to the same or another IRA within 12 months prior to the date the individual received the second distribution.

For example, if you are taking RMDs and withdrew all or any portion of your 2020 RMD from an IRA on February 15, 2020, under the relief of Notice 2020-51 you will have until August 31, 2020, to roll back all or a portion of the RMD to an IRA.

However, prior to the additional relief under Notice 2020-51, if at any time after February 15, 2019, you had received an IRA distribution that you had rolled over to the same or another IRA, you would be precluded from rolling back the 2020 RMD to an IRA.

Under Notice 2020-51, your prior distribution on or after February 15, 2019, will not preclude you from rolling back the February 15, 2020, RMD to an IRA, so long as you make the rollback no later than August 31, 2020.

These rules are complex, and not all possible scenarios have been addressed. If you have any questions concerning the 2020 RMD waiver, please contact your Frazer Ryan or Whetstine Law Firm estate planning attorney at 602-277-2010.