Curtis Financial Planning

Returning 2020 RMD’s To Avoid Taxation – New IRS Notice

One of the March 27, 2020 CARES Act’s key provisions was to waive the requirement to take Required Minimum Distributions (RMD’s) in 2020. This waiver is good news for retirees who don’t need the money but have to withdraw and pay taxes anyway. However, some people take their RMD, part or in whole early in the year, or take it as a monthly distribution starting in January. At first, it appeared that these early-birds did not catch the worm in this case, because they didn’t avoid the tax on this income.

Good News
The IRS must have heard the groans from the early-bird RMD takers (and their financial advisors and accountants) because they have modified the rules several times since the original provision passed into law.

The Fix
On June 25th, the IRS issued a notice that fixes all the confusion for those who took RMDs earlier. The Notice says that all RMDs taken in 2020 can now be rolled back into the IRA. These rollovers need to be completed by the latest, August 31st of 2020 – including RMD’s taken in January, received as monthly distributions that may be more than 60 days old, and any RMDs withdrawn by beneficiaries.

How Do You Return Them?

With most custodians, you can do a rollover electronically. Or call and find out what the correct steps to take. If you have a financial advisor, they can do it for you.

Documentation: Best Practice

To prevent any problems later, be sure to document these transactions. Take notes and put them in your 2020 tax file, save a copy of your statement that reflects the transactions. Lastly, don’t forget to tell your tax accountant about the rollover so you don’t pay unnecessary tax.

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