IRS Extends RMD Rollover Period for 2020 to August 31

[cathy63]

When the CARES Act was signed back in March, we had some discussions about whether it was possible to return RMDs that had already been taken early this year. At the time, it seemed like the 60-day rollover window would apply, so anyone who was outside that window was out of luck. Today, the IRS announced an extension that lets any RMD taken this year qualify for rollover until August 31.

https://www.irs.gov/pub/irs-drop/n-20-51.pdf

C. Extension of 60-day deadline for rollover of certain distributions. To assist plan participants who have already received distributions in 2020, the Treasury Department and the IRS, pursuant to § 402(c)(3)(B), are extending the 60-day rollover period for any payments described in section III.A and section III.B of this notice so that the deadline for rolling over such a payment will not be before August 31, 2020. For example, if a participant received a single-sum distribution in January 2020, part of which was treated as ineligible for rollover because it was considered an RMD, that participant will have until August 31, 2020, to roll over that part of the distribution. In addition, the Treasury Department and the IRS, pursuant to § 408(d)(3)(I), are extending the 60-day rollover period for IRA distributions in 2020 that would have been an RMD in 2020 but for section 2203 of the CARES Act or section 114 of the SECURE Act, so that the deadline for rolling over such distributions will not be before August 31, 2020.

I hope this is good news for some folks here.

 

[SecondCor521]

It does provide more flexibility for my Dad, so thank you.

So for someone who wanted to take advantage of this who has taken RMDs and had federal taxes withheld, and has a traditional and a Roth at Vanguard, how does that work?

Obviously send $X back to Vanguard and say "it's a rollover, put this in the Roth" - is that enough? Will it be reported properly on the 1099-R that way? If that's how it works, I'm surprised Vanguard would just take his word for it. Obviously a rollover amount could exceed the annual contribution limit for a Roth and would have to be coded differently for tax purposes (I think).

 

[cathy63]

I was thinking about returning funds to the account from which they came, which would mean you'd either have to make up any taxes withheld, or end up reporting that amount as a taxable withdrawal. You'd most likely end up with a tax refund due to having lower than expected income if you put most of the RMD back in a tax deferred account.

For the case where you're rolling over to a different account such as a Roth, I don't see why you can't just tell Vanguard that's what you're doing. That's basically the same as an indirect rollover from an employer plan, and they sure ought to know how to handle those and issue the correct 1099s. I wouldn't be surprised if there's a box you check on the deposit form to indicate this is a rollover.

 

[SecondCor521]

Oh, yeah, I left that logic step out.

In my Dad's case, since he's not going on expensive trips this year, he probably doesn't need all of his RMD, but because of the broader family situation it might be reasonable for him to do a Roth conversion with some or all of the RMD that he doesn't need.

You're right, Vanguard probably can handle it

Thanks!