Your 2020 RMD Waiver Questions Answered
By Alayna Drope, CIP, CHSP
One of our IRA owners requested to return his RMD that was taken at the beginning of November. Can he roll the money back into his IRA, even though it’s after the August 31 deadline?
A required minimum distribution (RMD) is the minimum amount that must be taken from an IRA; it is not eligible for rollover because it is a required distribution. But in 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act waived 2020 RMDs.
The blanket RMD waiver means that retirement plan participants and IRA owners, including beneficiaries, are not required to take 2020 RMDs from their IRAs, inherited IRAs, or defined contribution plans. The RMD waiver also applies to individuals who reached age 70½ in 2019 but did not take their first RMD before April 1, 2020. In other words, IRA owners and plan participants who chose to delay their first (2019) RMD payment until April 1, 2020, do not have to take their 2019 or 2020 RMDs.
Because the 2020 RMD is waived, any distribution taken from an IRA in 2020 will be considered to have been taken voluntarily, even if originally taken to satisfy an RMD, and all normal distribution rules may apply. So if your client is eligible for a rollover—he hasn’t completed an IRA-to-IRA rollover in the last 12 months—and the rollover contribution is completed within 60 days of the distribution—the RMD can be returned to the IRA—as a rollover contribution.
The August 31 deadline permitted a return of distributions for individuals who would not normally have been able to roll over a distribution, such as a nonspouse beneficiary, a person who had taken multiple 2020 distributions to satisfy an expected RMD, or if the rollover contribution would have been beyond the 60-day window.
As long as they abide by the 60-day rollover rule and the one-IRA-to-IRA-rollover-per-12-months rule, IRA owners can roll over a waived RMD amount back into the IRA beyond the August 31 special relief deadline.
If an IRA owner who died in 2020 had not yet taken an RMD in 2020, does her beneficiary still need to satisfy the year-of-death—2020—RMD on behalf of the deceased IRA owner?
Because the IRA owner would not have been required to take the RMD, no year-of-death RMD is due; the RMD waiver applies to her beneficiaries too.
If an IRA owner chooses not to take his 2020 RMD because of the 2020 RMD waiver, does that mean he has make it up in 2021 and take two RMDs in 2021, one for 2020 and one for 2021?
No. Because the CARES Act waived 2020 RMDs, they are essentially “forgiven” and are not required to be made up in 2021 or any other year. At this point, RMDs will resume in 2021 on their regular schedule.
We have an IRA owner in RMD status who would like to convert his Traditional IRA to a Roth IRA. He signed a form earlier this year waiving his RMD. Would the IRA owner be required to take his RMD before converting the rest of his IRA to a Roth?
No. Because all 2020 RMDs have been waived, there is no requirement to distribute the RMD before performing a conversion. If the assets are otherwise eligible, all can be converted.
What if the IRA owner did not take her RMD in 2020, but didn’t sign a form saying she wanted to waive it?
Signed forms stating that the IRA owner is waiving an RMD are a way to keep things organized at your organization. It is not an IRS requirement that IRA owners sign a form waiving their RMDs.
Although 2020 RMDs are waived and there is no requirement to make RMD payments to account owners, your financial organization is required to notify clients about the 2020 RMD waiver. This notification should inform them of how any scheduled RMD payments will be handled, and request direction from them on whether they want to proceed in another manner. This is especially important if your financial organization automatically pays out RMDs, unless account owners opt out. If your organization does continue payments to account owners when no RMD is required, consider informing them about rollover eligibility.
