On August 24 the IRS issued a reminder to IRA owners and employer plan (e.g., solo 401k plan and full-time employer 401k plans) owners and beneficiaries of the fast approaching August 31, 2020 deadline to rollover or repay Required Minimum Distribution (RMD) received in 2020 to avoid paying taxes.
This RMD relief was provided as a result of the COVID-19 pandemic and is further discussed in the The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act.
RMD Waiver Quick Hitters
- This waiver includes RMDs for individuals who turned age 70 ½ in 2019 and took their first RMD in 2020.
- Individuals who took RMDs in 2020, including those who turned 70 ½ during 2019, have the option of returning the distribution to their account or other qualified plan.
Example 1: Distribution Taken from a Solo 401k Plan
If you took the RMD from your solo 401k plan on January 5, 2020, to avoid paying taxes on that distribution it must be returned by August 31, 2020 to one of the following accounts:
- roll it over to an IRA;
- roll it over to another 401k plan (e.g., your full-time employer 401k); or
- return it to the original plan (i.e., the solo 401k plan).
Example 2: Distribution Processed from a Traditional IRA
If you processed the RMD on May 5, 2020 from your IRA, the RMD can be returned by August 31, 2020 to one of the following accounts:
- roll it over to another IRA;
- roll it over to a qualified plan such as a solo 401k plan or full-time employer 401k plan; or
- return it to the original IRA.
- The RMD suspension doesn’t apply to qualified defined benefit plans.
- IRS Notice 2020-51 (PDF) also provides that the one rollover per 12-month period limitation and the restriction on rollovers to inherited IRAs don’t apply to this repayment.