As part of a larger relief package, the Internal Revenue Service extended late Thursday the 60-day rollover rule for individual retirement accounts until July 15, but only for distributions taken between Feb. 1 and May 15 of this year, IRA expert Ed Slott told ThinkAdvisor.
The Coronavirus Aid, Relief and Economic Security (CARES) Act waived 2020 required minimum distributions, “but that wasn’t enacted until March 27,” Slott explained, “and by that time some people already took their IRA and plan RMDs.”
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Now IRA holders “want to know if they can return (roll) those funds back to a plan or IRA and eliminate the tax bill,” Slott said. “Normally you can only do that if you are within 60 days of receiving that distribution, and the 60 days have already passed for those who took RMDs early in the year.”
But “If you took your RMD in January, you’re out of luck,” Slott said. “Also if you are a beneficiary, this relief does not apply since a non-spouse beneficiary cannot do a 60-day rollover.”
Further, the IRS relief “does not cover the once-per-year IRA rollover rule. If an IRA owner did any IRA-to-IRA rollover (or any Roth IRA to Roth IRA rollover) within the 365 days preceding the receipt of the RMD, they don’t qualify for this extension.”
It’s important to note also, Slott explains, that the once-per-year rule “does not apply to company plans, so if you took your RMD from a 401(k) for example, you can use this extension to roll it over to the plan or an IRA and eliminate the tax bill.”
If an individual took their RMD from an IRA, they “could use this extension to roll the funds over to a company plan (if you still have one), since the once-per-year rule does not apply to rollovers from IRAs or company plans or vice versa,” Slott said.
The relief also does not apply to Roth conversions. “So in some cases an unwanted IRA RMD that cannot be rolled over due to the once-per-year rule, can be converted to a Roth IRA, since the tax has to be paid anyway,” Slott explained. “This will provide relief for some (but not all) of those who took an RMD and now want to roll it back get rid of the tax bill.”
Slott added that he hopes the IRS will “provide more broad relief for these unwanted RMDs, but so far, this is all we have.”