The required beginning date for taking money from an IRA or defined contribution plan used to be the year the taxpayer reached age 70.5. The distribution for the first year could be delayed to as late as April 1st, of the following year.
The SECURE Act changed the age from 70.5 to age 72 for anyone who had not yet reached age 70.5 as of December 31, 2019. In other words, if the taxpayer reached age 70.5 on or before December 31, 2019, the taxpayer had to start taking distributions and continue taking distributions. If the taxpayer had not yet reached age 70.5 on or before December 31, 2019, the taxpayer’s required beginning date is the year the taxpayer reaches age 72. Again, the first year’s distribution could be delayed as late as April 1st of the following year.
The CARES Act permits taxpayers to ignore the requirement to take an RMD for the year 2020. This includes:
1) Taxpayers who turned 70.5 during 2019 and chose to delay the first distribution to 2020 but not later than April 1, 2020,
2) Taxpayers who were 70.5 or older as of December 31, 2019, or
3) Taxpayers who were beneficiaries of an IRA or defined contribution plan as of December 31, 2019.
Unfortunately, the CARES Act didn’t become law until March 27, 2020, by which time many taxpayers had already taken some or all of their 2020 RMD. Of course, since the CARES Act eliminated RMDs for 2020, these earlier distributions could be rolled, but the time limit for rollovers is 60 days and some distributions were already past the 60-day time limit. Also, taxpayers can only do one rollover every 12 months. For the past few months, the tax professional community has questioned whether or not these early RMDs could be rolled over beyond the 60th day AND whether more than one rollover could take place, such as when a taxpayer was spreading the RMD into monthly payments and had already received multiple monthly payments.
Now IRS issued Notice 2020-51, on Tuesday, June 23, 2020, and answered these questions. Briefly this 10-page Notice (plus a 2-page Appendix) states:
1) A taxpayer who took an RMD in 2020 can roll over the RMD to avoid paying taxes on the distribution as long as the rollover takes place no later than the LATER of: a) the normal 60-day rollover period, or b) August 31, 2020.
2) If a taxpayer took multiple payments in 2020 as part of the RMD, the taxpayer can roll over the total RMD amount as long as the rollover takes place no later than the LATER of: a) the normal 60-day rollover period, or b) August 31, 2020.
3) Such a rollover will not be treated as a rollover for purposes of the “one rollover per 12-month period” limitation found in §408(d)(3)(B).
4) This rollover option does NOT apply to distributions from a defined benefit plan.
5) This rollover option does NOT apply to any distributions above and beyond the RMD amount for the year. (We interpret this Notice to say all distributions taken in 2020 are considered to be the RMD first. For example, a taxpayer who has an RMD for 2020 of $6,000 chooses to take a total of $18,000 in distributions at the rate of $1,500 per month. The first $6,000 of distributions will be considered RMD distributions and eligible for rollover and the remaining $12,000 are NOT eligible for this rollover treatment although some or all of this remaining $12,000 can be rolled but is subject to the “one rollover per 12-month period” limitation.)
6) This rollover option (and waiver of taking RMDs) does NOT apply to distributions that are part of a series of substantially equal periodic payments designed to avoid the 10% early distribution penalty. These distributions must still be taken or the taxpayer will face the 10% early distribution penalty for breaking the stream of payments. (This makes sense since these substantially equal period payments are not RMDs and the CARES Act change did not address a stopping of these payments.)
The Notice also has 12 Q&As to address other issues related to retirement plans and the CARES Act.
You can find this Notice by going to irs.gov/pub/, clicking on irs-drop, and then on n-2020-51.