Took RMD on Jan 31, 2020

Submitted by Thomas Cheairs on Mon, 2020-04-27 13:17

I took my RMD on Jan. 31st in accordance with an automatic withdrawal program with my investment banker Fidelity Investments. I was unaware at that time of the suspended RMD requirement for 2020 provision of the CARES ACT. On April 3, I was notified in a written message from Fidelity of this provision. So, I rolled the RMD distribution back into my IRA with Fidelity’s approval, completely unaware of the January rollover prohibition provision. Fidelity did not notify me at the time of the rollover that January distributions were NOT eligible for rollover relief under CARES, only February and beyond distributions and in fact I don’t think the January restriction had become a provision of CARES until later in April. In any case,

My main concern is that I may become liable for not only the IRS income tax on the disallowed rollover, but a 50% excess contribution penalty as well. My CPA has no clue as to what I need to do to correct my situation since these are uncharted waters. All IRS Taxpayer Assistance offices are closed.

I have searched the CARES act including Title II Subtitle B and can find no complete description of the rules of the CARES act provisions and restrictions concerning suspension of mandatory RMD distributions for 2020. Also, do you think it is possible there may be an extension of relief of these provisions for those of us who took RMDs in January 2020.

I’d really appreciate comments as to what a reasonable course of action for me would be to avoid a tax penalty.

Thanks very much,

Tcheairs



Submitted by Thomas Cheairs on Mon, 2020-04-27 13:19

How will I receive notification that there are responses to my posts?

Submitted by tomd37 on Mon, 2020-04-27 13:46

You just have to periodically check the post to see if a response has been made. I am not aware of any automatic notification to you of a response

Submitted by David Mertz on Mon, 2020-04-27 14:04

The excess-contribution penalty is 6%, not 50%, but would apply each year that the excess remains in the account.  If no waiver of the 60-day rollover deadline is granted for distributions received in January, the rollover would constitute a regular contribution and would be an excess contribution to the extent that it exceeds the amount that you are eligible to contribute to a traditional IRA for 2020.  You have until the due date of your 2020 tax return to obtain a return of contribution of any amounts that you do not want to have treated as a regular contribution.

Submitted by Alan - IRA critic on Mon, 2020-04-27 14:44

  • I wouldn’t worry about this at all unless you get some blowback from Fidelity. Enforcement of the 60 day rollover deadlines are done at the custodian level and Fidelity made the distribution and accepted the rollover contribution, therefore they must have felt that the 60 day deadline was met. 
  • To dig a little deeper here, how was the 1/31 distribution made? Was it transferred into a taxable account at Fidelity, mailed to you, or some other option?  Rollover deadlines are based on the dates of receipt, not the date of distribution, therefore on what date were you in constructive receipt of this distribution?

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