It happens. You have made a 2019 contribution to the wrong type of IRA. All is not lost. That contribution can be recharacterized. While recharacterization of Roth IRA conversions was eliminated by the 2017 Tax Cuts and Jobs Act, recharacterization of IRA contributions is still available and can be helpful in many situations.
Maybe you contributed to a traditional IRA and later discovered the contribution was not deductible. Or maybe you contributed to a Roth IRA, not knowing that your income was above the limits for eligibility.
The IRA and plan rollover rules have been in constant flux this year. We are now past the original July 15 extended rollover deadline. This was the first extension date created by IRS Notice 2020-23. Distributions from an IRA or company plan taken February 1 or later could have been rolled back to an IRA or company plan beyond the standard 60-day rollover window. This rule applied to any distributions that were otherwise eligible to be rolled over, including unwanted RMDs.
Question:
For COVID "special" Aug 31 rollovers, am I allowed to return my 401(k) required minimum distribution (RMD) to my IRA?
Thank you,
Maria
Answer:
Hi Maria,
Yes, the CARES Act and subsequent IRS guidance allows unwanted
Admittedly, it’s not such a bad problem to have. Nonetheless, it’s true that high-paid company plan participants can have their benefits limited by the IRS compensation limit.
The compensation limit is $285,000 for 2020 and goes up most years based on cost-of-living increases. It was $280,000 for 2019 and $275,000 for 2018.
Pay above the limit can’t be used in determining employer contributions made to 401(k) plans and SEP and SIMPLE IRAs. Excess pay also can’t count towards benefits earned in defined benefit pension plans.
The countdown to the much delayed 2019 tax filing deadline is on. The deadline is July 15, 2020, which is only a couple of days away. Time is running out. Is your IRA ready?
Making Your 2019 IRA Contribution
Due to the COVID-19 pandemic the 2019 tax-filing deadline has been extended until July 15, 2020. This means that July 15, 2020 is also the deadline for making a 2019 IRA contribution. This is true even if you have an extension to file your tax return. An extension does NOT give you extra time to make a traditional or Roth IRA contribution. So, if you are thinking about making a 2019 contribution, the clock is ticking.
Question:
Hello,
I am aware of the IRA one-rollover-per-year rule. What I can’t find is if a married couple that files jointly violates the rule if they each do a rollover from their own individual IRAs?
For example: One person has an IRA in their name and takes a distribution and rolls it over within the 60-day limit avoiding the taxable distribution. Now, can the other spouse also take a distribution from their own IRA and do the same without incurring a taxable distribution?
Thanks so much.
Maggie
As we have written on many occasions, the “Coronavirus Aid, Relief, and Economic Security Act” (CARES Act) waives required minimum distributions (RMDs) for 2020. This waiver applies to company savings plans and IRAs, including both inherited traditional and inherited Roth IRAs. While that sounds like a straightforward announcement, the RMD waiver has generated a landslide of inquiries and confusion since the CARES Act was passed in late March. Here are a dozen of the most popular and widely applicable Yes/No questions and answers:
There’s been a flurry of recent government regulation of company retirement plans. Here’s a quick summary:
Electronic Disclosure of Retirement Plan Documents
On May 27, 2020, the Department of Labor published a final regulation making it easier for employers to issue retirement plan notices to participants electronically. Notices can be posted on a website or mobile app or delivered via email. Employees who prefer hard copies can opt out of electronic delivery and receive paper disclosures instead.
Question:
If someone took two IRA distributions earlier in 2020 that were considered RMDs, and now wishes to repay the cumulative amount back into the same IRA, are there any rules about the number of rollover deposits they can make in order to do so? Must it be done in 1 transaction, or 2, or could it be spread out across even more?
Thank you,
Adam
Answer:
Adam,
With IRS Notice 2020-51, released on June 21, the one-rollover-per-year rule and the 60-day rollover rule can both be bypassed for RMD payments that are returned by August 31, 2020.
IRAs are supposed to be for saving for retirement but in challenging economic times like these many individuals may be forced to take distributions before retirement age. Be careful! If you tap your IRA before reaching age 59 ½, the bad news is that you run the risk of being hit with the 10% early distribution penalty. The good news is that there are some exceptions to this penalty. You IRA distribution will still most likely be fully taxable, but you can spare yourself the additional 10% penalty if one of these exceptions apply to you.
