The IRS has issued an extension of the 60-day rollover rule that can help retirees who took their 2020 required minimum distribution “recontribute” the money to their IRAs.
In early April, we explained that Section 2203 of the CARES Act grants a waiver of the required minimum distribution (RMD) for 2020 from certain defined contribution plans and individual retirement accounts (IRAs). For those who had yet to take their RMD for the year, this was great news as they could keep these funds from being taxed for another year. However, if you took your RMD prior to the passing of the CARES Act and you don’t need the funds for living expenses, we explored some ways you may be able to get the money back into your retirement account.
On April 9, the IRS issued Notice 2020-23, which effectively provides an extension of the 60-day rollover rule for distributions made between Feb. 1, 2020, and May 15, 2020. The extension allows for more time and flexibility for getting RMD money back into the account by July 15, 2020. So, for example, if you took your RMD on February 1, you can put it back in the account anytime between now and July 15. For RMDs taken after May 16, this extension reverts to the standard 60-day window.
Our position is that multiple distributions being rolled back into an account at one time, would be considered a one-rollover transaction, and therefore, not in violation of the “one per year” rule for 60-day rollovers. For example, if you withdrew $10,000 in February, $10,000 in March, and $10,000 in April, based on Notice 2020-23, you could put $30,000 back into the account as one-lump sum before July 15, and therefore avoid tax on the full $30,000. Further, our interpretation of IRS Notice 2020-23, is that this extension of the 60-day rollover rule applies to all IRA distributions taken between February 1 and May 15, not just required minimum distributions.
Please keep in mind that the information is based on our interpretation of the law at this time. These rules are subject to IRS interpretation, so please consult your tax adviser or CPA before relying on this information.
The 60-day rollover rule has always required that the rollover must be like-kind, so if you distribute cash, you must roll cash back in. If you distribute stock, you must roll in the same number of shares of the same stock that was distributed, regardless of value.
If you withdrew 100 shares of ABC company stock valued at $10,000 on February 1 as your RMD, and the value fell to $5,000 by April 1, it doesn’t matter. You must roll the same shares back that were distributed on February 1. This will reflect a difference between the 1099 distribution value and the 5498 recontribution value, but the IRA owner should not be taxed on the difference. He or she should file a letter of explanation with the taxes that demonstrates this was a 60-day rollover and provide supporting documentation. Likewise, if the shares increased in value, you could recontribute the same number of shares—they wouldn’t make you match the value. It’s the identical number of shares and the same security that matter, not the value.
It is also worth noting that your investment custodian is not “policing” any of the distributions being claimed as “coronavirus related.” Rather it is acting on self-certification from the account owner that they are qualified to take a coronavirus-related distribution. It will be up to you and your tax adviser to report distributions and subsequent recontributions as necessary on the tax documents. Operationally, recontributions to the account should be coded as rollover contributions, not regular contributions.
In summary, getting RMDs back into the account can be done one of two ways.
For Non-Coronavirus Related Distributions taken in 2020:
- February 1 – May 15: Extension applies; rollover eligible until July 15. This provides an extension beyond the traditional 60-day window.
- May 16 and onward: Extension does not apply; subject to traditional 60-day window.
- January 1 – January 31: Ineligible for rollover extension; 60-day window expired. Individuals impacted by Coronavirus, see ‘Coronavirus Related 2020 Distributions’ below.
For Coronavirus Related 2020 Distributions:
- Are not eligible for rollover but can be repaid over three years.
Please note, there is still some grey area in the law, and the IRS has not yet issued guidance on everything addressed in this follow-up. You should seek guidance from your CPA or tax adviser to understand how these possible solutions could impact your specific personal situation. If you have questions on recontributing your 2020 RMD, the experts at Henssler Financial will be glad to help: