The Coronavirus Aid, Relief, and Economic Stability (CARES) Act., which was passed by Congress earlier this year to provide tax relief for the economic impact of the Coronavirus, allowed a waiver from taking required minimum distributions (RMDs) during the 2020 calendar year.
The waiver applies to defined contribution plans, including 401(k) plans and 403(b) plans, and individual retirement accounts (IRAs). The waiver of RMDs does not apply to defined benefit plans.
Because the CARES act waived the requirement to take RMDs in 2020, such distributions already taken would be considered non-RMD distributions which are usually eligible to be rolled into another plan or IRA with 60 days of receiving the distribution.
Relief for Taxpayers Who Already Took Distributions
Since the CARES Act was passed on March 27, 2020, many taxpayers who could have taken advantage of the waiver had already taken a distribution in 2020 and, in many cases, the 60-day time limit to rollover non-RMD distributions had already expired.
In Notice 2020-51, the IRS announced that taxpayers who already withdrew and received their RMDs (including from inherited IRAs) between January 1, 2020 and July 2, 2020 can repay the distribution to the plan by August 31, 2020 and treat it as a rollover contribution.
Distributions taken after July 2, 2020, are subject to the usual 60-day rollover requirement.
If an IRA owner or beneficiary repays the distribution to the same IRA by August 31, the repayment will not be counted as a rollover for purposes of the limit of one rollover per 12-month period.
Taxpayer who have already taken a required minimum distribution from their 401(k), 403(b) plan, or IRA this year should consider whether they should take advantage of this opportunity.
Taxpayers who otherwise do not need to withdraw distributions from their retirement plans can reduce their 2020 taxable income by repaying their RMDs to the plan by August 31.