June CARES Act Revision Extends Rollover Relief

Jay Flower Jay Flower, CFP®

The initial version of the Coronavirus Aid, Relief and Economic Security (CARES) Act, which was signed into law on March 27, provided over $2 trillion in stimulus to help counter the economic headwinds from the COVID-19 pandemic.

The most prominent components of the bill revolved around expanded unemployment insurance and the Paycheck Protection Program (PPP); however, there were a number of other components that directly impacted investors which we detailed in our March 31st note. The most notable was the temporary waiver of Required Minimum Distributions (RMD) from retirement accounts for the year 2020. Those who had already taken their RMD on or after February 1 were eligible to do a one-time 60-day rollover to return the funds to their IRA. Unfortunately, those who took their distributions before February 1 were not eligible to roll the funds back into their IRA.

On April 9, the CARES Act was revised to extend the rollover period for distributions taken on or after February 1 to the later of 60 days from receipt of distribution or July 15. This was a welcome revision; however, those who took any distributions before February 1 remained excluded from being able to return those funds to their IRA.

The latest revision, detailed in Notice 2020-51, released June 23, provides welcome relief for all. The IRS now allows those who took a distribution in January to roll all or a portion of the funds back into their retirement account if they desire. They also extended the rollover window to the later of 60 days or August 31 and eliminated the one rollover per year limitation for IRAs. This means those who have already rolled a portion of their RMD back into their IRA are now eligible to do subsequent non-taxable rollovers, not exceeding their original distribution amount, back into the IRA. This revision also allows the beneficiaries of inherited IRA accounts to return any distributions they received this year before the August 31 deadline.

Including January distributions, delaying the deadline to August 31, and allowing beneficiaries of inherited IRAs to return any distributions they have taken this year are changes that provide welcome relief to all. For many individuals who are required to take distributions from their IRA but do not need the funds for living expenses, or who have sufficient funds from other sources to cover living expenses, returning 2020 RMDs to their IRA will likely reduce their 2020 income tax liability and allow the RMD amount to remain in their IRA growing tax-deferred. While everyone’s situation differs and many people’s circumstances have changed as a result of this pandemic, the deadline extension gives individuals time to thoroughly evaluate whether they should return some or all of the distributions they received from a retirement account this year. In making these decisions, it is important to review your cash flow needs and determine which liquidity sources can be accessed in the most tax-efficient manner.

If you are considering rolling funds back into your IRA, or wondering if it is prudent to not take your RMD in 2020, please do not hesitate to reach out to us so we can help you make this decision in the context of your broader financial circumstances.

Your HM Payson Team

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