Question on rolling over 2020 RMD’s per the new extension by the IRS

Submitted by Kevin O'Hearn on Wed, 2020-07-01 17:30

Hello,

With respect to the new extension for rolling over 2020 RMDs in IRS Notice 2020-51, are you of the opinion that RMD amounts can be rolled back to any eligible retirement plan or IRA? Meaning they don’t have to return the funds to the same IRA it was distributed from and that it could be returned to any IRA?

This is the case under the normal IRS rollover rules and with rolling back CRDs, but the verbiage below is being interpreted differently by different people. Thanks!!

D. Permitted repayments of RMDs previously distributed from an IRA. In the case of an IRA owner or beneficiary who has already received a distribution of an amount that would have been an RMD in 2020 but for section 2203 of the CARES Act or section 114 of the SECURE Act, “the recipient may repay the distribution to the distributing IRA”, even if the repayment is made more than 60 days after the distribution, provided the repayment is made no later than August 31, 2020. The repayment will be treated as a rollover for purposes of § 408(d)(3) of the Code, but will not be treated as a rollover for purposes of the one rollover per 12-month period limitation in § 408(d)(3)(B) and the restriction on rollovers for nonspousal beneficiaries in § 408(d)(3)(C).

Any feedback would be greatly appreciated. Thank you.



Submitted by Alan - IRA critic on Wed, 2020-07-01 19:09

If the distribution was taken from a qualified plan, it can be rolled over to any eligible retirement plan. Many qualified plans would not accept the rollover, so a participant might have to use an IRA to complete the rollover. However, if the distribution was from an IRA, it clearly can only be returned to the distributing IRA account, and the IRS could match the account # on the 1099R with the account # on the 5498 reporting the rollover contribution. Since eligible amounts are limited to what would have been the 2020 RMD, it is unlikely that the first account would be drained, but if that account had been transferred elsewhere in the meantime, the IRA custodian might have to override any system restriction in order to allow the rollover to me made back into the distributing IRA account.

Submitted by David Mertz on Wed, 2020-07-01 19:31

If the IRS had intended to allow the IRA distribution that would have been an RMD to be repaid to any of the individual’s IRAs, I don’t think that the IRS would have referred specifically to “the distributing IRA account,” except, perhaps, in the case of a distribution from an inherited IRA.  Allowing the repayment to be made only to the distributing IRA makes sense for two reasons:  First, it is essentially a restorative payment permitted by the IRS rather than a true rollover, allowing repayments to be made that would otherwise violate statutes prohibiting a rollover of the distribution.  Second, it allows IRA custodians to scrutinize these repayments and question any repayment that would be in excess of the amount of the RMD for that particular account (although such scrutiny might complicate repayment of an aggregated RMD which, I believe, is permissible).

Submitted by Randy Wagner on Fri, 2020-07-03 15:12

I received an RMD from a non-spouse inherited IRA this year.  I want to put it back as allowed by IRS notice 2020-51.The custodian (T Rowe Price) tells me it can’t go back into the same account because the money into that account must come directly from the deceased’s account.  Is it OK to roll this RMD into a different IRA?Another complication:  That inherited IRA was established before the 10 year distribution rule.  Would the 2020 RMD roll-over now be per the 10 year rule?

Submitted by David Mertz on Fri, 2020-07-03 15:50

Ordinarily, the money being deposited into an inherited IRA can only come from the account of the decedent, but that does not apply to a repayment under Notice 2020-51.  Whoever you spoke to at T. Rowe Price is mistaken since Notice 2020-51 says that the “repayment” is permissible and is to be repaid to the distributing account.  Perhaps T. Rowe Price has not yet adjusted their programming to easily accommodate such a repayment, but that’s no excuse, or the rep that you spoke to is misinformed or confused.  Make sure that they understand that this is to be a repayment under Notice 2020-51, not a 60-day rollover, since an ordinary 60-day rollover of this distribution is prohibited by statute.

Submitted by Alan - IRA critic on Fri, 2020-07-03 16:22

You should call back and talk to someone up to speed with this Notice. It clearly indicates that such a distribution must be returned to the distributing account. I have not heard of any major IRA custodians that are declining to support this Notice, so I think you talked to the wrong rep at TRP.  Perhaps they need some more time for training, so maybe wait another 10 days and call back. Further, it does not matter when the inherited IRA was established as long as the distributed amount would have been an RMD for 2020, and such rollback would not trigger the 10 year rule. Beneficiary RMDs will resume as normal in 2021.

Submitted by Alan - IRA critic on Fri, 2020-07-03 16:34

Additional notes: Beneficiaries of qualified plan participants do not have the option of rolling back 2020 would be RMD distributions, only IRA beneficiaries have this option. However, the inherited IRA rollover option for beneficiary distributions does appear to apply to all beneficiaries including estates. But since many estates are subject to the 5 year rule, if 2020 is not the final year of the 5 year rule period, the 2020 distribution is not treated as an RMD for 2020. Therefore, such a distribution cannot be rolled back. 

Submitted by David Mertz on Fri, 2020-07-03 17:54

My earlier reply assumed that this was a beneficiary RMD for 2020 and not a late-taken distribution for an earlier year or a non-required distribution under the 5-year rule.  If the distribution was not actually an RMD due to the 5-year rule applying and not being the final year, Notice 2020-51 would likely not change the reasoning behind taking the distribution in 2020, which probably would have been to spread distributions out over several years to avoid spiking the marginal tax rate in a single year.  Section 2203 of the CARES Act delays the final year of the 5-year period by one year, allowing an additional year over which to spread the distributions, so the only difference would be that it might have made sense to distribute a somewhat less in 2020 if it was known beforehand that there would be an extra year over which to spread the distributions.

Submitted by Randy Wagner on Sat, 2020-07-04 01:18

Thank you for your answers!

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