Seniors got a big break back in March when the Coronavirus Aid, Relief, and Economic Security (CARES) Act nixed required minimum distributions (RMDs) for 2020. But some retirees who took money out of a retirement account before enactment of the CARES Act were stuck and unable to take advantage of the RMD waiver. That's all changed now, though. The IRS issued new guidance expanding the waiver relief and giving retirees more time to undo pre-CARES Act withdrawals.
RMD Waivers for 2020
Generally, once you turn 72 (70½ before 2020), you have to take a certain amount of money out of your traditional IRAs and 401(k) plans each year. These mandatory retirement account withdrawals are called "required minimum distributions" (or RMDs for short).
A lot of retirees complain each year about being forced to take RMDs. However, there was even more concern about them this year because of the economic mess we're in right now. Requiring distributions in 2020 would have essentially forced retirees to "sell low" by pulling money out of their retirement account when the stock market is down significantly. So, under the CARES Act, RMDs are waived for 2020. This gives retirees some breathing room and lets them keep money in their retirement accounts a little longer to (hopefully) recover the lost value.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
But what about the early birds who already took their RMD for 2020 before the CARES Act was enacted? If you took an RMD this year between February 1 and May 15, you had until July 15, 2020, to put the money back into an IRA and avoid paying tax on the withdrawn amount. If you took an RMD in January, though, you were out of luck – until now.
Any 2020 RMD Can be Undone
The IRS now says that anyone who took an RMD from an IRA or 401(k) plan in 2020 can repay the withdrawn funds – even if the withdrawal was in January. The repayment will be treated as a tax-free rollover, but it isn't subject to the "one-rollover-every-12-months" rule. Tax-free rollovers are also now available for 2020 RMDs taken by beneficiaries of inherited IRAs. Before the new IRS guidance, inherited IRAs weren't included in the relief measures.
However, these repayment rollovers are limited to the amount that would have been required as an RMD if the CARES Act had not waived RMDs for the year. Rollovers aren't available for 2020 distributions from a traditional pension (i.e., a "defined-benefit plan"), either.
Rollovers Must Be Completed by August 31
The IRS also extended the rollover deadline for RMDs already taken this year (normally, rollovers must be completed within 60 days). The original due date for rollovers was July 15, 2020, for RMDs taken between February 1 and May 15. Now, retirees who took an RMD between January 1 and June 30 have until August 31, 2020, to repay the distributed funds. That gives everyone a little more time to put the money back into an IRA or 401(k) plan to avoid paying tax on a previous 2020 distribution.
Benefits of Repaying 2020 RMDs
If you need the money, by all means keep any 2020 retirement plan distributions that you already took. However, if you can pay all your bills without that money, putting it back into a retirement account can save you in many ways. In addition to allowing the money to grow for a longer period of time, you'll also have less taxable income for 2020. That can translate into less tax on your Social Security benefits, lower Medicare premiums, or a "recovery rebate" credit on your 2020 tax return. It can also make it easier to convert a traditional IRA into a Roth IRA if that makes sense for you.
-
Stocks Slip to Start Fed Week: Stock Market TodayWhile a rate cut is widely expected this week, uncertainty is building around the Fed's future plans for monetary policy.
-
December Fed Meeting: Live Updates and CommentaryThe December Fed meeting is one of the last key economic events of 2025, with Wall Street closely watching what Chair Powell & Co. will do about interest rates.
-
This Is Why Investors Shouldn't Romanticize BitcoinInvestors should treat bitcoin as the high-risk asset it is. A look at the data indicates a small portfolio allocation for most investors would be the safest.
-
Are You Middle-Class? Here's the Most Tax-Friendly State for Your FamilyTax Tips We found the state with no income tax, low property tax bills, and exemptions on groceries and medicine.
-
Social Security Benefits Quiz : Do You Know the IRS Tax Rules?Quiz Social Security benefits often come with confusing IRS tax rules that can trip up financially savvy retirees and near-retirees.
-
How Are I Bonds Taxed? 8 Common Situations to KnowBonds Series I U.S. savings bonds are a popular investment, but the federal income tax consequences are anything but straightforward.
-
New 2026 Tax Change Could Mean More for Your IRA and 401(k) SavingsRetirement Savings Here's how the new IRS inflation adjustments will increase the contribution limits for your 401(k) and IRA in the new year.
-
Capital Gains Tax Quiz: How Well Do You Really Know IRS Investment Tax Rules?Quiz Take our capital gains tax quiz to test your investment taxes knowledge. Learn about loss rules, holding periods, and tax incentives that could impact your savings.
-
6 Tax Reasons to Convert Your IRA to a Roth (and When You Shouldn't)Retirement Taxes Here’s how converting your traditional retirement account to a Roth IRA can boost your nest egg — but avoid these costly scenarios.
-
Could Tax Savings Make a 50-Year Mortgage Worth It?Buying a Home The 50-year mortgage proposal by Trump aims to address the housing affordability crisis with lower monthly mortgage payments. But what does that mean for your taxes?
-
3 Ways High-Income Earners Can Maximize Their Charitable Donations in 2025Tax Deductions New charitable giving tax rules will soon lower your deduction for donations to charity — here’s what you should do now.
