IRS Notice 2020-51: Corrections to the CARES Act and the Rollover Relief for RMDs

SC&H’s Key Takeaways

  • IRS Notice 2020-51 tried to clear up some confusion the CARES Act caused regarding Required Minimum Distributions (RMD).
  • RMDs were waived under the CARES Act. However, if you took a 2020 RMD, you now have until August 31, 2020 to put it back or roll it over into a qualified account.
  • While RMDs generally do not qualify to be rolled over, 2020 RMDs do qualify for rollover treatment. Additionally, 2020 RMD rollovers do not count towards the one rollover per 12-month period rule.
  • Non-spousal IRAs are generally prohibited from engaging in rollovers. However, 2020 RMDs from non-spousal IRAs are eligible for rollover treatment, so long as they are rolled by August 31, 2020.

On June 23, 2020, the IRS issued Notice 2020-51. This notice sought to bring clarity to the confusion that the CARES Act created around Required Minimum Distributions (RMD). The CARES Act allowed for the waiver of all 2020 RMDs, as well as allowed for those RMDs already taken to be rolled over to eligible accounts or returned to the qualified plans from which they came. In the rush to get the Act passed, the law failed to address several key points of existing tax law. So instead of creating relief for taxpayers, it created confusion and frustration.

The CARES Act created three issues surrounding RMDs:

  1. The 60-day Rollover Rule: Under current tax law, IRA beneficiaries are allowed to withdrawal funds from qualified plan for up to 60 days without penalty. As long as they return the funds within 60 days, they pay no tax and no early withdrawal penalty. The CARES Act was passed at the end of March 2020. By that time, many people already took their RMDs and were outside the 60-day rollover window. The CARES Act did extend the 60-day rollover window to July 15, 2020 for RMDs taken February 1st or later. However, it did not apply to RMDs taken in January. Those distributions had no relief under new law.
  2. The IRA Rollover Rule: Under current tax law, you may only roll over one IRA distribution in a 12-month period, and RMDs are prohibited from being rolled over. For beneficiaries who already conducted one rollover in 2020, they are prohibited by law from subsequently rolling their RMDs into another qualified account. The CARES Act provided no relief for these taxpayers.
  3. Non-Spousal Beneficiaries of IRAs: Under current tax law, non-spousal beneficiaries are prohibited from engaging in any rollovers. For non-spousal beneficiaries that had not yet taken their 2020 RMDs, the CARES Act eliminated the need to take them. However, if you already took 2020 RMDs, the CARES Act provided no relief for you to roll those funds back into a qualified account.

How Does IRS Notice 2020-51 Attempt to Remedy These Issues?

The IRS attempted to fix these technical issues with IRS Notice 2020-51. The notice states that you now have until August 31, 2020 to rollover all previously distributed 2020 RMDs. This includes RMDs taken in January. It also states that the rollover or repayment of RMDs will not be treated as a rollover for purposes of the one rollover per 12-month period rule. It also allows for the rollover of non-spousal beneficiary RMDs. Now, thanks to the IRS, all taxpayers subject to RMDs qualify for the tax relief that Congress intended with the CARES Act.

This is great news for those individuals who took RMDs and would like to put them back. By putting them back, you can reduce your current year taxable income and allow the funds to grow tax-deferred for an additional year.

If you have any questions or would like to speak with one of our team members, please don’t hesitate to reach out. SC&H is here to help.