Amended CARES act guidelines | Ed Slott and Company, LLC

Amended CARES act guidelines

I saw that all distribution taken out in 2020 can be rolled back as long as it's done by 08/31. Does this included Proft Sharing plans, Inherited IRAs, and 401k's?

Not all distributions, just amounts that would have been RMDs had 2020 RMDs not been waived. With respect to non spouse beneficiaries, only inherited IRA RMDs can be rolled back by 8/31 and only to the distributing IRA account. Again, a plan is not required to accept such rollovers, and that may result in many QRP distributions ending up in IRAs.

Suppose the plan allows someone to put back their RMD into their 401K. Can that person instead opt to put it in a Traditional IRA?

Yes, the rollover can go into any eligible plan including IRAs.

My client took his RMD in January. He can now return the amount taken back into his IRA. Thanks

If this was an IRA distribution that would have been an RMD it can only be rolled back to the distributing IRA account by 8/31. If such distribution was from a qualified plan, it can be rolled into any eligible account by 8/31. Any withholding from the distribution can be replaced using other funds if desired.

What happens if a client has multiple IRAs, does it have to go back into that specific one?  Or just any of the client's IRAs?

The Notice states it must be rolled into the distributing IRA, meaning the specific account.  This limit may be intended to make it easier for custodians to know the RMD amount and validity of the rollover. Note that if the distributing account has been distributed, many custodians do not close the account for a period of time such as 12 months.

A RMD was taken in January 2020 by having shares transferred in-kind from an IRA account to a non-IRA account. The dollar amount at the time of the distribution was slight more than the required RMD amount. With Notice 2020-51 allowing the rollback of January RMDs, two questions come up: 1. Can the entire amount of the the distribution be rolled back into the originating IRA account, or can only the required RMD amount be rolled back? 2. Can the rollback be in cash for the actual dollar amount or must the rollback be in the form of shares? If it must be in the form of shares, is the requirement that the same number of shares be rolled back or is the requirement that the number of shares must equal the value of the required RMD? Thanks

An in kind IRA distribution can only be rolled over if the same property that was distributed is rolled back into an IRA, in this case the distributing IRA account. Cash cannot be substituted. While investment gain or loss for the shares is ignored, if the "would be" RMD would have been satisfied by x shares, only x shares can be rolled back. Shares in excess of x cannot be rolled back as they would not have been RMD amounts. In this situation, there would be no Form 8949 reporting since the shares are being transferred, not sold.

  • Since slightly more than the RMD was distributed in the form of shares, the amount rolled back can't be for more than the actual amount of the RMD.  As Alan said, the rollover must be with the same property that was distributed, meaning the same shares.  This sounds like the actual RMD amount was for a fractional number of shares, so the number of shares was rounded up to the next whole share.  If that is the case, the rollover back to the IRA should round downwards to the next lower share.  That will leave a small taxable distribution amounting to a fraction of a share.  As an alternative, the same number of shares can be rolled back, creating an excess accumulation with a value of a fraction of a share.  Then, you can withdraw the excess accumulation as cash.  If done right away, the earnings on the excess would be very low or possibly zero, and with no penalty.  You can use this alternative if you don't want to be stuck with only one share in your non-IRA account.
  • Were these shares from an employer plan, and possibly highly appreciated?  If so, there may be NUA implications.

A repayment under Notice 2020-51 is not permitted to be any more than the RMD, so moving more shares back to the IRA as a repayment in excess of the (possibly fractional) number required to have been distributed as the RMD should be prohibited by the IRA custodian, particularly since the shares must be moved in-kind.  Either the number of shares repaid must include just the fraction of a share or the number of shares must be rounded down.  There is no option to include in the repayment under Notice 2020-51 any portion of any shares in excess of the number that corresponds to the amount of the RMD.


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