If The RMD Was Already Taken …
If you already took your RMD, you have 60 days to roll the funds back in. That’s good news for some, but not all. “If a person’s 60-day deadline occurred on or after April 1, they have until July 15” to reinvest it, says Carol McClarnon, a Washington, D.C.-based partner at Eversheds Sutherland, a global law practice. (An additional extension is pending.)
Ben Barzideh, a wealth advisor at Piershale Financial Group in Barrington, Ill., adds that anyone who is outside the 60-day rollover window can get an extension “if they can show they were negatively impacted by the Covid virus.”
For those who took their RMD as cash from a stock fund, reinvesting the money might enable them to buy more shares than they originally had. “In essence, this means you’re able to buy back into an investment that’s actually become cheaper,” says Larry Divers, executive vice president of Cannon Financial Institute in Athens, Ga.
On the other hand, those who took their RMD not as cash but as stocks or other securities may be stuck. McClarnon says, “The general rule is that rollovers have to be made using the same property as was distributed. So … that same stock would have to be returned.”
If the security has lost value since the distribution, though, there could be tax consequences. You roll back the same security that was distributed regardless of what its value is on the date of the rollback. But in your next tax return, you will have to explain any change in value.
A Few Caveats
Clients who skip this year’s required minimum distribution must be careful not to overlook next year’s requirements. “Those receiving automated distributions … may need to restart those payments,” cautions Dave Stinnett, head of the strategic retirement consulting group at Vanguard in Malvern, Pa.
Experts also warn that returning an RMD can only happen once in a 12-month period. “People who were taking their 2020 IRA RMD in monthly installments can only put back one of those installments,” says Natalie Choate, an estate planning attorney with Nutter McClennen & Fish in Boston.
The rules are a little different, too, for beneficiaries who inherited tax-deferred accounts. They’re eligible to skip this year’s RMD, but they can’t return the funds if they’ve already taken them—with the possible exception of spouses, who can execute what’s called a spousal rollover. In general, though, beneficiaries cannot “enjoy the same opportunity to replace already distributed amounts,” says Heitzman at CUNA Mutual.
What To Do With RMD Funds
Advisors offer a few ideas about what clients can do with their required minimum distributions if they don’t need the income.
They can convert it—or a part of it—to a Roth IRA. This doesn’t provide an immediate tax deduction, but there will be no penalties or additional taxes when funds are withdrawn. “A Roth conversion could be done without having to sell shares,” says Philip D’Unger, senior team leader of wealth planning at CAPTRUST in Raleigh, N.C.
Another idea is to donate to charity. Shelly-Ann Eweka, a wealth management director at TIAA in Charlotte, N.C., says the CARES Act increased the limit on charitable deductions from 60% of adjusted gross income to 100%, and those who don’t itemize can deduct donations up to $300.
Meanwhile, Congress is considering a further stimulus bill that would, in part, wipe out the RMD requirement for 2019 as well. “To be honest, this provision is the ultimate head-scratcher, since 2019 RMDs are all taken out by now,” says Jamie Hopkins, Philadelphia-based managing director of Nebraska’s Carson Coaching.