If you took a 2020 distribution from a 401K, 403B or IRA account, you can return that money and reduce your 2020 tax burden. However, the deadline to return (rollover) distributions is August 31, 2020, so taxpayers need to act soon to be sure of meeting the deadline. Taxpayers who took 2020 distributions and who have access to other sources of funds (savings, investments) should consider returning the distribution as the tax savings may be substantial.

The IRS issued Notice 2020-51 which extended the 60-day rollover period for distributions. Any distribution taken in 2020 can be rolled back over, tax-free, if the rollover is completed by August 31, 2020.

The entire amount of the distribution, including any tax withholdings, needs to be rolled back into an eligible retirement account to avoid taxation of the original distribution. Taxes withheld from the original distribution and included in the rollover can be claimed on 2020 tax returns. Any portion of the distribution that is not rolled over is taxed as ordinary income.

Notice 2020-51 also provides an exception for the  365-day IRA rollover rule that applies to IRA-to-IRA rollover or IRA-to -Roth IRA rollover. Taxpayers are normally allowed one rollover within 365 days with respect to these types of accounts. The IRS clarified that 2020 rollovers made by August 31, 2020, will not be subject to this limitation, for amounts that would have been RMD’s for 2020.  The 365-day rule applies to situations where the funds are distributed to the taxpayer personally and does not apply to trustee-to-trustee rollovers or rollovers between IRAs and non-IRA qualified plans.

Beneficiaries of inherited IRA’s are also allowed to rollover distributions under this guidance.

Taxpayers should contact the institution holding the account(s) where the distribution originated to determine the procedures for the rollover. In some instances, plans may not allow rollovers. In these circumstances, rollovers can be made to other IRA accounts.

If you think that you can benefit from a rollover and need assistance, please reach out to your personal Sciarabba Walker contact or email us at info@swcllp.com.