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Jill Ciccarelli Rapps, CFP

At this point, many are aware that under the Cares Act, you have an option not to take your annual required minimum distributions this year. This includes distributions that would be necessary on inherited 401Ks or IRAs. This rule typically does not apply to defined benefit plans or if you are taking substantially equal payments from on IRA because you were younger than 59 ½ at the time you started your withdrawals.  

There may be many benefits for not taking your distributions this year such as: allowing your IRA to recoup from the volatile markets; lowering your federal and state tax income for 2020; increasing your deductible medical expenses; and possibly lowering your future Medicare premiums in 2022.

If you already took your distribution this year, can you roll it back into your qualified plan? 

Normally, you have 60 days to do a tax-free rollover, and if you take your IRA distribution out in January, you would be out of luck. However, under Notice 2020-51, the IRS has now extended the rollover time till August 31, 2020. Any RMD’s that were taken in January 2020 are now covered under this guidance.

What if you received your distributions monthly and have been receiving them since January?  

Generally, under the tax law, you cannot make more than one rollover from your IRA’s within one year. Notice 2020-51 temporarily waives the one-rollover every 12 months. You may be able to get all these distributions back into your qualified plan by August 31, 2020. This could also pertain to anyone that may have already completed a 12-month rollover in the last 365 days.  

Could you withhold taxes from your distributions to meet your tax payments for the year?

Here is an example of how this may work; if you took a $50,000 distribution, and you withheld $15,000 for taxes on January 15th of this year, you could return the $35,000 to your tax-deferred account and add another $15,000 out of your pocket to make up for the amount that was withheld. To recover your taxes that were withheld ($15,000), you may consider reducing your tax withholding on other income and lower your scheduled estimated tax by this amount or apply for a refund on your 2020 return. Be sure to check with your CPA if you roll back your distributions to be sure you do not incur any penalties.

What if you received a required minimum distribution in the form of stock?

If you sold the shares, you may not be able to recontribute the proceeds and treat it as a rollover since it violates the little-known rule that when doing an IRA rollover, you must rollover the same property that you originally received from the account. Notice 2020-51 does not seem to waive the same-property requirement for IRA rollovers.

What are the chances that Congress will waive the RMD’s again for 2021?   

Tax experts suggest it is unlikely we will have bigger tax surprises, but depending on the elections, the length of the country’s economic challenges, and the stock market’s performance – who knows, maybe we could see another “gift” from the IRS come our way!


The Kiplinger Tax Letter vol. 95, No. 14

Ed Slot, IRA Consultant Rockville Centre, N.Y.

Investment advisory services offered through Ciccarelli Advisory Services, Inc., a registered investment adviser independent of FSC Securities Corporation.  Securities and additional investment advisory services offered through FSC Securities Corporation, member FINRA/SIPC and a registered investment adviser. 9601 Tamiami Trail North, Naples, FL. 239-262-6577.

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