The CARES Act signed into law earlier this year waives all required minimum distributions (RMDs) for 2020.

What if you already took your annual RMD? The IRS has granted a rare tax time machine to un-do what’s been done. But, like Marty McFly you need to take action before time runs out on August 31, 2020.

2020 RMD Waiver

The CARES Act waives all 2020 RMDs for IRAs and defined contribution plans. The Act applies to you if one of these describes your situation:

• You turned age 70.5 during 2019 and had to take your first RMD by April 1, 2020, and actually waited until 2020 to take it;
• You turn age 72 during tax year 2020 and have to take your first RMD by April 1, 2021 but took it in 2020; or
• You have an inherited IRA or other inherited retirement account and were otherwise required to take an RMD for tax year 2020.

Relief
​If you didn’t know about the CARES Act RMD waiver or took your RMD prior to the CARES Act and you don’t need the cash you can return some or all of the RMD to the account, pretend it never happened, and avoid paying tax on the amount re-deposited.

You have two options for undoing your 2020 RMD:

• Do an indirect rollover (deposit) to another account, or
• Repay the funds to the same account.

Indirect rollover.
You generally have 60 days from the distribution date to complete an indirect rollover. But in Notice 2020-51, the IRS extended the deadline to August 31, 2020, even if the 60-day window has already closed.

• Inherited, Non-Spousal IRA You can’t do an indirect rollover from an inherited non-spousal IRA. Instead, to avoid being taxed on your RMD, you must use the repayment method described next.

Repayment.
You can repay up to the amount of the RMD to the original account by August 31, 2020, and pay no tax on the amount re-deposited.

Important note. This opportunity is only for RMD amounts distributed (withdrawn). Any amount you took out in excess of your RMD is not eligible.

Amounts withdrawn as Substantially Equal Periodic Payments (SEPP) or under 72t are also not eligible as they are not RMDs.

Example: Jennifer had a $4,000 RMD requirement for her traditional IRA for tax year 2020 and took out $5,000 on January 15, 2020.

Jennifer has two options:

• Put $4,000 in another traditional IRA by August 31, 2020, or
• Return $4,000 to the same traditional IRA account by August 31, 2020.

In either scenario, Jennifer must pay tax on at least $1,000 of what she withdrew because it is in excess of her RMD (what she was otherwise required to withdraw).

Example: Dr. Brown didn’t need any money for living expenses but took a $5,000 RMD in January 2020 because he was required to do so in 2020. On August 30 he returned $5,000 to his IRA. Dr. Brown will not pay tax on any of the January RMD. He can decide later in the year to take a distribution if he needs cash and he will pay tax on the amount withdrawn.

August 31, 2020 will be here soon. Don't miss this tax saving opportunity.

Contact your custodian for the specifics of how to return the money to your account.

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