Inherited IRA RMD – repayment per 2020-51!

Submitted by Deirdre Totten on Mon, 2020-07-06 18:09

Hello – I took out my Inherited IRA RMD in later March 2020, and was told I could not repay it back in May/June. Glad to see the new IRS changes (rule 2020-51) include inherited IRAs for RMDs taken earlier in 2020, can now repay it back to same custodian.
My question is about the taxes withheld and (assuming) already sent to the IRS for the RMD taxes. What do I pay back to custodian? #1) The entire gross RMD amount taken , OR # 2) the RMD net amount = minus the taxes withheld? And, if your answer is #1, then I can assume this pre-paid money to IRS can be in lieu of making an estimated tax payment?! Thank you and any other guidance on this appreciated.

Question #2 – When do you expect the IRS will issue the new mortality changes in 2021? Any idea how this will affect the amount I’ll need to pay, more or less of an RMD (on lifetime dist. stretch)? Just when I thought I had it all figured out and routine……



Submitted by Alan - IRA critic on Mon, 2020-07-06 18:29

  1. You can roll back the gross distribution or any part of it you choose. Of course, you must come up with other funds to replace the withheld amount and eliminate all taxable income from the distribution.  Whatever portion you decide to roll back, it must be done by the 8/31 deadline and the funds must be rolled back to the distributing IRA account. The same assets distributed (cash or securities) must be the assets rolled back. As for the withholding now at the IRS, consider it as any other withholding for 2020, which is broader than a quarterly estimate because it is treated as paid in equally throughout the year. To avoid having the withheld funds tied up till spring, you might reduce other planned withholding or estimates through year end.
  2. The approval of new RMD tables should be done by November under ideal conditions, but things at the IRS are not ideal. I suppose there is a chance the new tables are not adopted right away for a combination of reasons such as pandemic related mortality, programming stress on plan administrators and chaos at the IRS. Without inside info, no way to tell how or when just now. If the proposed table changes are adopted, they would roughly reduce RMDs by around 6%, but over a number of years, the higher account balances from reduced RMDs would eventually offset the years of reduced RMDs %s.

Submitted by Deirdre Totten on Mon, 2020-07-06 19:19

Thank you.  On #1, can you restate your second sentence a bit (sorry) (Does it mean: If Pay the gross including the IRS taxes withheld, the IRS gets to keep the taxes already withheld from it now, meaning I’m out the 10% taxes paid until next spring, when taxes are due, and I have to come up with extra money to pay it back?)?   Also, on #1, does it make sense for me to repay it at all because I’m considering doing an IRA to Roth conversion later this year, depending?  If I don’t pay it back, what is it considered? And is it now a penalty, because RMDs were waived, and I took one?  So, what are ramifications if I pay it back or not, specifically and broadly?  Thx.

Submitted by Deirdre Totten on Mon, 2020-07-06 19:10

Thank you.  On #1, can you restate your second sentence a bit (sorry) (Does it mean: If Pay the gross including the IRS taxes withheld, the IRS gets to keep the taxes already withheld from it now, meaning I’m out the 10% taxes paid until next spring, when taxes are due, and I have to come up with extra money to pay it back?)?   Also, on #1, does it make sense for me to repay it at all because I’m considering doing an IRA to Roth conversion later this year, depending?  If I don’t pay it back, what is it considered? And is it now a penalty, because RMDs were waived, and I took one?  So, what are ramifications if I pay it back or not, specifically and broadly?  Thx.

Submitted by David Mertz on Mon, 2020-07-06 19:31

Like any tax withholding, whatever was withheld for taxes is credited on your tax return against your overall tax liability, decreasing your balance due or increasing your refund.  You can’t get it bak until then except by reducing withholding from other sources or reducing estimated tax payments you might otherwise pay.

Submitted by Deirdre Totten on Mon, 2020-07-06 20:22

Oops, I think the second part of my question above was overlooked.  Here it is:   Also, on #1, does it make sense for me to repay it (RMD) at all back because I’m considering doing an IRA to Roth conversion later this year, depending?  If I don’t pay it back, what is it considered? And is it now a penalty, because RMDs were waived, and I took one?  So, what are ramifications if I pay it back or not, specifically and broadly?  Thx.

Submitted by Alan - IRA critic on Mon, 2020-07-06 20:36

  • If you roll back the full gross distribution, you will not have any taxable income from the distribution. You will be in the same position as if the distribution was never taken, so any conversion you do will not have to be added to the RMD distribution.  If you do not need this money, it makes sense to roll the entire gross distribution back to the inherited IRA.
  • There is no penalty if you do not roll back the withheld portion, but the amount withheld will be included in your taxable income, the amount rolled back will not.
  • The IRS has the withholding and will apply it to your 2020 tax bill once you file whether you complete the rollover or not. But if you complete the rollover your tax bill will be lower because the portion sent to the IRS will not count as 2020 taxable income. Again, this is unrelated to doing a Roth conversion later on, except that your taxable income will include your conversion plus any of the withheld amount that you do NOT roll back. 
  • It may be easier to understand the withholding if you think of it as money that was first distributed to you and then you wrote a check to the IRS to apply to your 2020 tax bill. Money distributed to you will be taxable unless you roll it over to an eligible account.

Submitted by Deirdre Totten on Tue, 2020-07-07 01:35

Thanks, Alan!  This is what I get for being proactive this year and taking my RMD so early.  Who would’ve guessed about the CV fiasco ravaging our country, needlessly…..

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