By Andy Ives, CFP®, AIF®
The IRA and plan rollover rules have been in constant flux this year. We are now past the original July 15 extended rollover deadline. This was the first extension date created by IRS Notice 2020-23. Distributions from an IRA or company plan taken February 1 or later could have been rolled back to an IRA or company plan beyond the standard 60-day rollover window. This rule applied to any distributions that were otherwise eligible to be rolled over, including unwanted RMDs. As long as the dollars were returned by July 15, almost anyone could have taken advantage of the July 15 extended rollover period. (Distributions prohibited from using the July 15 reprieve included withdrawals taken in January of 2020, multiple 2020 distributions – because of the one-rollover-per-year rule – and non-spouse beneficiary distributions.)
Example 1: Jim took a non-RMD distribution from his IRA in February to buy a house. His plan was to replace (rollover) those dollars when his old house sold in March. But the closing was delayed, and Jim missed the 60-day rollover window. Fortunately for Jim, under Notice 2020-23, he was able to take advantage of the extended rollover period. When his old house did eventually sell, Jim replaced the IRA dollars via a rollover before July 15.
But these advantages are no longer available for non-RMD withdrawals. New guidance from the IRS in Notice 2020-51 extended the rollover deadline to August 31. However, this extension is for required minimum distributions only. Since RMDs are waived for 2020, those who took an RMD anytime in 2020 can now put everything back by August 31. Since the one-per-year rollover rule is also waived, those who took multiple RMD payments now qualify. Non-spouse beneficiaries are also eligible for this rollover relief. (Keep in mind that rollovers of RMDs that would otherwise violate the one-per-year rule or are made by non-spouse beneficiaries only qualify for Notice 2020-51 relief if they are returned to the same IRA from which they were taken.)
Going forward, any eligible rollover distributions, including 2020 RMDs, have the usual 60 days to be rolled over. Unwanted 2020 RMDs can still be rolled over after August 31, but relief from the once-per-year rule will be lost. In addition, non-spouse beneficiaries who miss the August 31 deadline will not be allowed to roll the distribution back.
Example 2: Margaret is 45. She did not know that RMDs were waived for 2020 and takes what she thought was her required amount from her non-spouse inherited IRA in late July. If she wants to roll the distribution back, it must be returned to the same inherited IRA, and it must be returned by August 31.
Example 3: Tonya is 30. She takes a non-RMD distribution from her IRA in July and another in August. Tonya has 60 days from the date of either distribution to roll one of these withdrawals over if she chooses. The other is bound by the one-rollover-per-year rule and cannot be returned. Since neither distribution was an RMD, she gets no benefit from Notice 2020-51.
The IRA and plan rollover rules have been in constant flux this year. We are now past the original July 15 extended rollover deadline. This was the first extension date created by IRS Notice 2020-23. Distributions from an IRA or company plan taken February 1 or later could have been rolled back to an IRA or company plan beyond the standard 60-day rollover window.