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Ask the Expert: How to undo RMDs taken in January

The government waived 2020 required minimum distributions (RMDs) at the end of March, and people who had taken 2020 RMDs between Feb. 1 and May 15 were given until July 15, 2020, to put that money back if they wished. But what about people who took their RMDs in January, which reduced their retirement account balances and increased their 2020 taxable income. Why don't they have the option to put that money back if they don't need it to live on?

Now they do. The Internal Revenue Service has announced that everybody who took an unwanted 2020 RMD will have until Aug. 31, 2020, to roll that money back into a retirement plan if they wish.

The announcement (IRS Notice 2020-51) applies to 2020 RMDs taken from IRAs and from employer-sponsored retirement plans like 401(k), 403(b) and 457 plans — and it includes RMDs taken from inherited accounts.

Normally, you have only 60 days in which to roll money from one tax-deferred retirement account to another, and you can only do one 60-day rollover every 12 months. The new relief measure extends the usual 60-day period to Aug. 31, 2020, no matter when in 2020 the RMD was taken, says Ed Slott, a Rockville Centre tax accountant. It also waives the once-per-year rule, so that anyone who took monthly RMDs earlier in the year has the option to return them all. But these exceptions only apply to RMDs, he adds. "Withdrawals of non-RMD funds are still bound by the one-rollover-per-year rule and the standard 60-day rollover rule."

(These 60-day rules only apply to rollovers — money withdrawn from retirement accounts then redeposited. There are no limits on transfers — money that's moved between retirement accounts in a trustee-trustee transfer.)

The bottom line

If you took an unwanted 2020 RMD, you have until Aug. 31 to put it back.

More information

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