Act NOW: CARES Act Rollover Relief

Aug 17, 2020

Did you take your required minimum distribution (RMD) from your retirement account and now regret it? According to IRS Notice 2020-51, if you did take your RMD, there is still time to replace that distribution and avoid the tax burden. But time is running out! The funds you withdrew must be returned to the retirement account by August 31, 2020.


The CARES Act created a plethora of programs designed to benefit small businesses and individuals, including a 2020 Required Minimum Distributions waiver. For many, this RMD suspension was great news. If you take your RMD early or monthly or are the beneficiary of an Inherited IRA, you were subject to strict rollover rules that prevented you from taking advantage of this opportunity. You probably felt like nobody cared!

The IRS Noticed Your Pain

On June 23, 2020, the IRS issued Notice 2020-51, which provided unprecedented relief for most unwanted RMDs. This one-time special ruling removed the 60-day rollover window, the once-per-year rollover rule, and allowed non-spouse IRA beneficiaries to return unwanted RMDs.

If you took your RMD in January and thought you couldn’t replace it because of the 60-day rollover window, or if you take distributions monthly and thought you could only return one month because the once-per-year rollover rule, or that you can’t return RMDs to an Inherited IRA, think again and then thank the IRS.

What’s the catch? You can only return the unwanted RMD, and it must be completed by August 31.

Is Withholding Returned?

If you have your taxes withheld from your distribution, those funds are not returned by the government; however, you can make up the difference from your other funds to complete the rollover and remove the tax liability.

Let’s assume your RMD was $12,000, and you instructed the custodian to withhold $3,000 and send it to the government for income taxes. You won’t get credit for that $3,000 until you file your 2020 taxes. If you want to return the entire $12,000, you will need to get $3,000 from another account such as a savings account or brokerage.

Any part of the RMD not returned is taxable, so if you didn’t return the $3,000, you would owe taxes on that amount. Remember, if you had tax withheld, it could be used to cover tax on other 2020 income, such as dividends, interest, or capital gains. It can also be used to pay estimated taxes.


Please remember that the ability to return the unwanted RMDs only applies to the amount of the RMD withdrawn — and it must be completed by August 31. After that time, all regular rollover rules return. Also, all returned RMD funds deposited to the retirement account should be coded as a “rollover contribution” to avoid future headaches and confusion.

The rollover relief countdown clock starts now!

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