RELIEF BEYOND AUGUST 31 FOR RMD REPAYMENTS

By Ian Berger, JD
IRA Analyst
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Some of you may have received an RMD (required minimum distribution) from an IRA or employer plan earlier this year that you don’t want to keep. Since the CARES Act waived RMDs for 2020, “RMDs” received in 2020 are technically not RMDs and are eligible for rollover.

The IRS has relaxed the usual 60-day rollover rule if an RMD is repaid by August 31. (The IRS also waived the once-per-year rollover rule for an IRA RMD that is repaid back to the same IRA before August 31.)  With just a few days to go, you may not be able to time to meet the August 31 deadline. But all may not be lost.

If you received your RMD in July or August, the normal 60-day deadline will give you additional time beyond August 31 to repay the RMD.

And, if you are a “qualified individual,” you don’t have to sweat the August 31 or 60-day deadlines at all because you have plenty of time to repay your RMD.

Not everyone is a “qualified individual.” You must fall within one of the following categories to qualify: 

· an individual diagnosed with the SARS-CoV-2 or COVID-19 virus by a test approved by the CDC;

· an individual whose spouse or dependent is diagnosed;

· an individual who experiences adverse financial consequences on account of the individual, the individual’s spouse, or a member of the individual’s household:

          >  being quarantined, being furloughed or laid off, or having work hours reduced due to the virus;

          >  being unable to work due to lack of child care due to the virus;

          >  having a reduction in pay (or self-employment income) due to the virus; or

          >  having a job offer rescinded or start date for a job delayed due to the virus; and

· an individual who experiences adverse financial consequences on account of closing or reducing hours of a business owned or operated by the individual, the individual’s spouse, or a member of the individual’s household due to the virus.

A “member of an individual’s household” is anyone who shares the individual’s principal residence.

Under the CARES Act, qualified individuals can withdraw up to $100,000 from their IRA or company plan in 2020 and receive several tax breaks. These withdrawals, known as CRDs (coronavirus-related distributions), can be repaid tax-free within three years to an IRA or a company plan that allows rollovers. Repayment does not have to be made to the account from which the CRD originated. If you repay a CRD after paying taxes on it, you can file an amended tax return to recoup your taxes. (CRDs are also exempt from the 10% early distributions penalty, and CRD income can be spread out evenly over 2020, 2021 and 2022 tax returns.)

So, if you received an unwanted RMD and are a qualified individual, you can relax. Since your RMD is a CRD, you have three years to return it to an IRA or workplace plan.