When the CARES Act was signed into law on March 27th it suspended Required Minimum Distributions (RMDs) from Individual Retirement Accounts (IRAs) for 2020. It also allowed account holders to redeposit any prior distributions up to 60 days from the date of withdrawal. This was good news for many, as it potentially meant a lower tax bill for 2020 since there could be less reportable income.
However, anyone who took their RMD early this year was unable to redeposit the funds since it was already past the 60-day window. This effectively punished those who were efficient and proactive. Fortunately, on June 23rd, the IRS issued “Notice 2020-51” which amends the timing and allows for everyone to suspend their 2020 RMD, and redeposit funds already drawn. The only catch is that you must get the money back into your account before August 31st.
As with everything, there are some considerations before rushing to put money back into your retirement account, including:
Your current tax bracket: It may make sense to max out a lower bracket in 2020 through a full or partial distribution.
Your beneficiaries: If you have a large account and only a few beneficiaries, or if your beneficiaries are in higher tax brackets than you, it may make sense to pay taxes now, particularly since any inherited IRA money must be taken out within 10 years.
Your cash position: Since taxes are generally withheld when RMDs occur, you may need to find cash from other accounts to redeposit the gross amount. You will receive a refund for those amounts withheld, but not until 2021 when you file your 2020 return.
If you have already taken an RMD for 2020 we have reviewed your account to see if it makes sense to refund the balance. As always though, if you have questions, want to talk through the details, or would like to hear more about the ruling, please let us know.
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