Once a taxpayer reaches age 72 (or age 70 ½ if the taxpayer reached age 70 ½ prior to 2020), the Internal Revenue Code requires owners of most retirement accounts to withdraw minimum distributions (RMDs) from those accounts. To provide relief from the increased tax burden often associated with RMDs, the Coronavirus Aid, Relief, and Economic Security (CARES) Act waived RMDs for 2020. The tax savings provided by the waiver can be significant because RMDs often push taxpayers into a higher tax bracket.

The CARES Act, however, was not made law until March 27, 2020. Many taxpayers had already taken their RMDs for this year. Those taxpayers found that they were subject to the normal 60-day rollover period and once-per-year rollover rules, restricting their ability to return those RMDs to their retirement accounts. By the time the CARES Act became law, distributions taken prior to Feb. 1, 2020 were already past the 60-day rollover period and could not be undone without penalty.

Fortunately, the IRS recognized the inconsistency and issued Notice 2020-51, which gives individuals until Aug. 31, 2020 to roll their 2020 RMDs back into the their retirement accounts.

Specifically, the following distributions may be rolled over without penalty by August 31:

• Any RMDs taken by account owners from IRAs in 2020—including those taken prior to Feb. 1, 2020;
• Any RMDs taken by beneficiaries of inherited IRAs in 2020; and
• 2019 RMDs that were deferred into 2020 (including RMDs for those who turned 70 ½ in 2019 and who had to take a required distribution by April 1, 2020 under old law).

Of course, no action is required by those who had not yet taken RMDs in 2020 or by those who wished to take the RMDs all along. Moreover, distributions that exceed RMD amounts and non-deferred distributions taken by individuals under age 72 do not qualify for the relief provided by the CARES Act and remain subject to the typical 60-day rollover period and once-per-year rollover rules.

For more information, contact T. John Costello, Jr., Elizabeth Arentz or any member of Porter Wright’s Taxes, Estates and Personal Wealth practice group.