In response to the Covid-19 pandemic, Congress passed the CARES Act, effective March 27, 2020 , which waived the Required Minimum Distributions (RMDs) from 401(k)s, 403(b)s, and IRAs for 2020. Some taxpayers, however, had already taken their 2020 RMDs prior to passage of the CARES Act. While the IRS previously granted relief in the form of a rollover option, it did not cover distributions that were taken in January 2020. Now, the IRS has expanded its relief to include January distributions while also extending the rollover deadline from July 15, 2020 to August 31, 2020.
If you have already taken an RMD for 2020 but would like to treat it as a rollover instead of a taxable distribution, you now have until August 31, 2020 to “put back” the RMD without tax consequence. The amount you put back can include any federal income tax withheld on the original distribution. For example, if your RMD was $10,000 and you had 20% withholding, then your net check was only $8,000. For purposes of the rollover, however, the amount you can put back would be the full $10,000, not the $8,000. In this way, the account is fully restored. The $2,000 of withheld tax can then be claimed as a credit on your 2020 income tax return. Alternatively, if $8,000 is put back there would be $2,000 taxable on the 2020 return and $2,000 of withholding.
If you have not yet taken your RMD for 2020, then there is no requirement to do so. Depending on your specific tax situation, you may consider taking your RMD anyway, or converting your RMD to a Roth account. When converting to a Roth, the distribution is includible in gross income in the year converted but future earnings following the conversion would be tax-free. Please contact us if you would like to discuss the potential tax benefits of doing a Roth conversion, suspending 2020 retirement plan distributions completely or some other variation.