Ask a trust officer: RMD rollovers

DEAR TRUST OFFICER:

I turned 70½ in 2019, so I had to take my first required minimum distribution in early 2020, before April 1.  I did.  Now I’ve heard that I didn’t have to take that RMD after all?—DRAWING DOWN SLOWLY

DEAR DRAWING:

You’ve heard correctly.  The waiver of RMDs was included in the CARES Act, in response to declining stock prices caused by the coronavirus pandemic.  The amount of a required minimum distribution is fixed at the beginning of the year, based on account values and the age of the account holder.  The amount does not change with the markets, which is not a problem if prices are going higher.  But when prices fall dramatically, the rule can force the depletion of retirement savings at exactly the wrong time.

Those who received an RMD in 2020 are permitted to return that money to an IRA and avoid income taxation on it for another year.  In June the IRS extended the deadline for taking that action to August 31, 2020.  The transaction will be treated as an IRA rollover—except that it won’t be counted as an IRA rollover for purposes of the “once in 12 months” rule. (Only one IRA rollover is permitted in any 12 month period.  The older “once per tax year” rule that the IRS used was held by a court to be inconsistent with the plain language of the tax code.)

Before making a decision on whether to reverse your RMD, you should consult with tax and financial professionals.

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