Did you receive a required minimum distribution from a retirement account in 2020? If so, you may be able to return it to another retirement account by August 31 without taking a tax hit. Here is what you need to know:
Background on distributions and roll overs
You generally must begin taking distributions from IRAs and qualified retirement plans after reaching age 72 (recently increased from age 70½, beginning in 2020). The distribution amount is based on life expectancy tables and your account balance on December 31 of the prior year. Payouts are subject to tax at ordinary income rates.
To avoid paying taxes on a retirement account distribution, you generally must roll over the distribution (return the funds) to another qualified retirement account within 60 days. Another significant rollover rule is you can only do one IRA-to-IRA rollover in any 12-month period, regardless of the number of retirement accounts you own. (Rollovers from traditional IRAs to Roth IRAs are not limited.)
Distribution and rollover flexibility in 2020
A new law passed in March waived 2020 required minimum distributions from retirement accounts. The IRS also extended the normal 60-day window within which to make a rollover to August 31.
You may have received a distribution from a retirement account prior to the IRS's announcement of being able to forgo a distribution this year. So are you allowed to change your mind and put your 2020 distribution back into a retirement account without taking a tax hit? The answer is yes! But you must act soon.
WHAT YOU NEED TO DO
This exercise can get complicated. If in doubt, please call for assistance.
Last updated: 08/16/2020
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