Already-taken 2020 RMD

Submitted by Robert Vashko on Mon, 2020-04-06 19:23

A recent Slott Report, authored by Ian Berger, stated:

“Because of the CARES Act RMD waiver, the RMD you already received was not technically an RMD. This means the RMD can be rolled over as long as two conditions are met. The first is that the rollover must occur within 60 days of the day you received the RMD. The second is that you must not have received another distribution during the 12 months prior to receipt of the RMD that you rolled over the same way as the rollover you wish to do (traditional IRA-to-traditional IRA or Roth IRA-to-Roth IRA). If both of these conditions are met, you should be able to do the rollover.”

Taking that as a given, three questions:

1.) Is there IRS guidance or a bulletin to back that up? It makes sense, but I’m not sure if the Service has put that “in writing” yet.

2.) Suppose you took your 2020 RMD in January, and have since missed your 60-day rollover window. Are you out of luck?

3.) Suppose you are an IRA beneficiary who already took out their 2020 stretch RMD. You aren’t allowed to do indirect rollovers in the first place. Do you have relief here?

Thank you!



Submitted by Alan - IRA critic on Mon, 2020-04-06 20:39

  1. These rollover rules have always applied to non RMD or other distributions that are rollover eligible. And there is no question that 2020 RMDs were waived, so the IRS may feel that more guidance is not needed here.
  2.  Perhaps. The IRS will have to better define a CV related distribution. It is expected that they will interpret the definition broadly, but for anyone who has been directly impacted according to the CARES Act, these January distributions can be rolled back up to 3 years, and income reported over 3 years without regard to the 60 day deadline or one rollover limit. But there remains gray areas for which IRS guidance (or further legislation) is needed.
  3. Consensus is no relief, and probably little sympathy for beneficiaries. That said, it is not clear that an inherited account is excluded from CV distributions since they are still eligible retirement plans whether inherited or not. And if not excluded, CV distributions always go back by direct transfer not by disallowed rollover. Will have to see, but probably no relief.

Submitted by Robert Vashko on Mon, 2020-04-06 22:03

Thanks. 1.) So you’re interpretation is that the already-taken 2020 RMD – no longer being able to be called an RMD – must be re-interpreted as a voluntary withdrawal which the taxpayer can choose to treat as an indirect rollover if they decide to put the money back in within 60 days?  I don’t disagree; just making sure I understand your position.2.) I guess I am thinking more broadly about the IRA owners who can’t be deemed “qualified individuals” for CARES purposes.  I suppose you could make the case that the depressed account value of your IRA is a COVID-19-related financial hardship, as the market loss was caused by the pandemic, but that seems like a reach.3.) My concern for benes is the same as for owners non-“qualified individuals” who want to waive the RMD due to the poor market timing of the withdrawal (i.e., account value -20% below the value used to calculate the RMD).  As you said, lots of questions. Thanks again.

Submitted by Alan - IRA critic on Mon, 2020-04-06 22:55

  • That is correct on #1. All major financial firms and retirement consultants agree on this.
  •  The CARES Act suggests that employees and IRA owners are basically on the honor system. Employers are allowed to accept an employee self certification that they qualify. The requested distribution is then made, and finally the recipient decides whether to report it on a Form very similar to current IRS Form 8915B, which is already in use for natural disaster distributions. A CV distribution is treated identically with respect to reporting. The form contains all the rollover reporting, option to report income in 2020 if the default 3 year method is declined, penalty waiver, etc. The only place where some degree of control comes in is when a roll back is made, the receiving plan will inquire what year the rollover is for and enter it in Box 13 of Form 5498.  With so little documentation required, many expect that CV distributions will eventually be opened up to most everyone, since arguably everyone is effected in some manner. But that’s just speculation, will have to wait until the IRS issues guidance, and such guidance might be rolled out gradually.

Submitted by Donald Nix on Tue, 2020-04-07 18:19

My wife and I are both in our early 70’s and taking RMDs, but we’re taking the distributions differently: She’s taking 1/12 of her total RMD each month, having enough withheld for income taxes in our expected bracket, and having Vanguard transfer the after tax amount to a checking account. I’m taking some of mine in cash and some as “In Kind,” for example, by transfering $5000.00 in VTI (Vanguard Total Stock Market ETF) to a taxable account and delaying payment of taxes until later this year.  Now, the Cares Act has eliminated RMDs for 2020, so any distributions we’ve taken so far we’d like to reverse.  I’m told that distributions can be reversed if done within 60 days, but what I’d rather do is transfer whatever distributions we’ve made to our Roths.  Before the Cares Act, you had to take all RMDs before doing a partial Roth conversion, but now, since, the Cares Act has eliminated any REQUIRED minimum distributions, it would follow that we can do all the Roth conversions we want this year as long as we pay the taxes.  Neither of us has any serious health issues and longevity exists in our family. This would seen a far superior reallocation of assets to tax free Roths as opposed to taxable accounts.  Have I misunderstood this?  Is my thinking sound?  

Submitted by Alan - IRA critic on Tue, 2020-04-07 21:50

  • Your thinking is sound as long as you expect the benefit of conversions to be greater than your tax savings if you simply roll back the distributions.
  • However, there are some issues with your planned rollovers. First off, any rollover must be done within 60 days and each spouse separately must not have done another such rollover in the last 12 months (one rollover limitation). However, a Roth conversion does not count against the one rollover limit. Your wife has taken 3 separate distributions just in 2020, and at least one is over 60 days. For the ones within 60 days, she can roll them to a Roth IRA since conversions do not count toward the rollover limit.
  • Another technical issue is that for any IRA distribution to be rolled over, the same property must be rolled as was distributed. Typically, this is cash and very simple. However, your “in kind” distributions must be converted with the same shares as you cannot substitute cash for the securities. If you convert shares that have since dropped or increased in value, it does not matter as you will report the dollar value distributed as the amount rolled over or converted.
  • Any withholding taken out of these distributions can be replaced using your other cash to create a full rollover or conversion.
  • Finally, for distributions over 60 days, there might be a work around for that also if the definition of a corona virus related distribution is broadened further. If any distribution so qualifies the 60 day time limit and the one rollover rule are irrelevant since rollovers of CV distributions can be done up to 3 years, and the taxes paid over 3 years as well. You may have to wait a couple months for the final definition of a CV distribution to be published by the IRS.
  • Therefore, while your plan is sound, there are several technical rules to navigate here, so this will take some careful consideration.

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