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IRS extends relief on 2020 RMDs through August 31, 2020.

Tommy Blackburn, CFP®, CPA, PFS

Michael R. Mason, CFP®, CLU, CHFC®

Required Minimum Distributions (RMDs) have been through quite the whirl wind in the past seven months. 

First there was the SECURE Act, which among many things, shifted the beginning age for RMDs from 70 ½ to 72 for those who were not already 70 ½ by the end of 2019.  Further, the SECURE Act generally eliminated the ability of beneficiaries of inherited retirement accounts to “Stretch RMDs” over their lifetimes.

Then COVID-19 happened and one of the government responses was the passage of the CARES Act, which waived all RMDs for 2020.  The goal was to minimize account withdrawals while the stock market was down significantly.   The CARES Act was passed on March 27th, but at that point many people had already taken their entire RMD for tax year 2020.  The IRS subsequently issued Notice 2020-23, which extended the 60 day rollover period for unwanted RMDs through July 15th and applied it retroactively to February 1st.  This notice provided taxpayers the ability to return their unwanted RMDs to their tax preferred retirement accounts and also provided ample time for taxpayers to return the distribution. The only issue with this ruling was that taxpayers who took their RMD in January would not be afforded the same treatment as those that took their distributions on February 1 or later.  Further, the 60 day rollover rule limits this type of rollover to one per 12 month period.  If you did a rollover for a January RMD using the 60 day rule, you are basically done for the year and any additional distributions during the next 12 months would not be eligible for rollover.

IRS Notice 2020-51 was released on June 23rd providing additional relief.  This latest guidance, which is retroactive to January 1st, waives the once per 12 month 60 day rollover limit, allows non-spouse beneficiaries of inherited retirement accounts to roll their RMD back into the account and extends the deadline to August 31, 2020.  This relief is broad and pretty much covers every situation: 

  • Taking monthly distributions of your RMD and want to roll them back in by August 31st ?  
  • Taking RMDs from an inherited IRA and want to roll them back in by August 31st?        
  • Took your RMD in January and want to roll it back by August 31st                                 

Check out our recent blog on taking advantage of the RMD waiver by executing a Roth conversion.  If you’ve already taken an RMD in 2020, you have until August 31 to undo it.  The distribution can be returned to the same account or to a Roth IRA.  If you return the distribution to a Roth IRA it will be treated as a Roth conversion which results in an increase to your taxable income in exchange for tax free growth on the converted amount. RMDs typically can’t be converted to Roth IRAs but 2020 provides for a unique planning opportunity.