Time is Running out to Return Required Minimum Distributions for 2020

As part of the CARES Act, 2020 required minimum distributions (RMDs) have been waived for IRAs and retirement plans, including beneficiaries with inherited accounts. If you have taken an RMD in 2020 you are eligible to return those funds up until August 31, 2020.

2020 RMDs are eligible to rollover into another IRA, or you can return your RMD into your existing IRA. Why would someone choose to do this? Returning your IRA allows you to lower your income in 2020. If you do choose to waive your RMD you will not be required to take twice as much in 2021. Waiving an RMD can push many people into a lower tax bracket which may create other tax planning opportunities. One opportunity could be doing a Roth conversion to try and take advantage of low tax rates if you have the right tax situation.

It is also important to note that if you had withholding taken out of any distribution, you must return the income taxes that were withheld by the custodian, otherwise you will be subject to income tax on that amount.

You should also make sure that the custodian indicates the transaction is a return of funds and not a contribution. Excess contributions can lead to additional taxes for as long as the excess amount remains in the IRA.

It is important to consult with your tax advisor to determine if returning any RMDs makes sense for you.  If you have questions on your situation please don’t hesitate to reach out to me at kwoodworth@teamdkb.com.