By Andy Ives, CFP®, AIF®
Like most people’s lives, the retirement world is upside down. This is made evident by a single statement: “Required minimum distributions (RMDs) can be rolled over.”
Yes, that is the new normal – at least for this year. RMDs are considered the first money out of an IRA and workplace plan. Typically, these dollars are ineligible to be rolled over to either another plan or IRA. The RMD always had to be taken first. If an RMD was erroneously rolled over, it was an excess contribution and the appropriate fix-it steps had to be followed.
But those hard-and-fast rules are no more for 2020. As we have written in the Slott Report, the “Coronavirus Aid, Relief, and Economic Security Act,” or the “CARES Act,” was signed into law on March 27. The Act includes a waiver of RMDs for this year from company savings plans and IRAs. In addition, the CARES Act impacts 2019 RMDs for those who reached age 70 ½ in 2019 and have a required beginning date of April 1, 2020. Any 2019 RMD amount remaining and not already withdrawn by January 1, 2020 is waived.
But what about RMD payments that were withdrawn between January 1, 2020 and March 27, when the Act was signed? Those account owners had no way of knowing that RMDs would be waived. And what about RMDs that were withdrawn subsequent to the passing of the CARES Act? After all, many RMDs are paid out automatically.
There is relief. Since RMDs are essentially eliminated for 2020, any withdrawal of what would have been an RMD is now considered a normal withdrawal. There is no “first money out” rule to be concerned with. Normal (voluntary) withdrawals are eligible for rollover, so some or all of the money may be able to be returned to the account. I say “may” because the CARES Act does not grant a free rollover to everyone for every RMD dollar. There are rules that must be followed, including:
1. The 60-day rollover rule still applies. The distribution must have been received within 60 days to be eligible for rollover.
2. The one-per-year rollover rule still applies. If another 60-day rollover was done within the previous 365 days, then the RMD cannot be put back. This means that if a person received monthly RMD payments, only one can be rolled over. (Note: Rollovers from employer plans to IRAs and vice versa do not count toward the one-per-year rule.)
3. Non-spouse inherited IRA RMDs cannot be rolled over. While the CARES Act waived RMDs from both inherited traditional IRAs and inherited Roth IRAs, payments already received cannot be returned. Even though the character of the inherited IRA RMD was changed to a normal withdrawal, no type of withdrawal from an inherited IRA can ever be rolled over.
Be sure that all rules are followed before haphazardly rolling over an RMD. Yes, these are crazy times, but they are also fluid times. Changes come quickly. Further guidance from the IRS could potentially expand RMD rollover capabilities. As of this writing, RMDs that meet the standard rollover requirements can be rolled back to where they originated or to another qualified account.