We’ve updated this blog with recently issued guidance. Click here to read the updated blog.
The CARES Act waived required minimum distributions (RMDs) for 2020. However, some taxpayers may have already taken distributions from retirement accounts in 2020. Under recently issued IRS guidance, they may have the opportunity to reverse the distribution.
The IRS issued Notice 2020-23 which extended the 60-day rollover period for distributions. Any distribution taken between February 1, 2020 and May 15, 2020 can be rolled back over, tax-free, if the rollover is completed by July 15, 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.
The 365-day rule IRA rollover rule still applies to an IRA-to-IRA rollover or IRA-to -Roth IRA rollover. If a taxpayer completed one of these rollovers within 365 days of receiving a 2020 distribution, the 2020 distribution is not eligible under the extended 60-day period. 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.
If the distribution occurred in January of 2020, the distribution cannot currently be returned. However, it is widely believed that the IRS will issue additional guidance that would allow these distributions to be rolled over.
If a taxpayer completes a rollover under the guidelines above, they should keep documentation of the date and amount of the rollover to ensure that it is properly reported in 2020.
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