Notice from IRS on reversing RMDs from retirement accounts

IRS notice 2020-51 has been released as additional "fine-tuning" of the provision in the CARES Act that excuses required minimum distributions (RMDs) from IRAs and other retirement accounts this year. The notice advises that anyone who had already taken an RMD for 2020 before the law was passed in March will have until August 31, 2020 to restore the funds to the account, and the distribution will be regarded as rescinded. Under the statute and regulations, the "standard" time is limited to 60 days.

Recall that the other important provision of the CARES Act was that anyone, regardless of age, can withdraw up to $100,000 from an IRA if the money is needed due to a Covid-related hardship, and some or all of the money can be restored within three years without the recognition of income. If the owner finds that he is unable to restore all of the money, he will be given three years to pay the income tax due on the distribution.

Incidentally, our experience this year leads to a new recommendation. If you calculate your RMD in January based on the value of the account as of the preceding December 31, you should sell the assets you need to liquidate rather than waiting until later in the year. Most retirement accounts saw values drop by 20-25% in March and April of this year, and if such a drop happens the owner of an IRA can be hard pressed to take the RMD from the remaining funds.