IRS eases rules for reversing required retirement savings withdrawals

If you took a minimum required distribution from your retirement account this year and want to reverse it, now you can.

The IRS said Tuesday that anyone who has already taken a RMD in 2020 from certain retirement accounts has until August 31 to return the money. The announcement comes several months after the CARES Act removed those mandatory distributions for the year, although some people had already taken them before the law passed.

“This is very good news for someone who wants to reverse their distributions,” said certified financial planner and certified public accountant Jeffrey Levine, director of advanced planning for Buckingham Wealth Partners in Long Island, New York.

More from Smart Tax Planning:
The costs of working from home can get tax exemption in these states
This is where you can get your tax return for free.
Tax day is coming. Are you ready?

RMDs are mandatory withdrawals that the government requires you to take from certain retirement accounts once you reach a certain age or inherit one of the affected accounts. Legislation passed in late 2019 raised the RMD age to 72 from 70½, effective this year.

The CARES Act, enacted in late March, allows any taxpayer facing a RMD in 2020 of their defined contribution retirement plan, including a 401 (k) or 403 (b) plan, or their individual retirement account, to omit those retreats this year. This includes anyone who turned 70 and a half in 2019 and who would have had to take the first RMD before April 1, 2020. The exemption does not apply to defined benefit plans (ie pensions).

The new IRS relief applies to people facing RMD because of their age or because they inherited an account that comes with those mandatory withdrawals, Levine said.

Although Levine questions the agency’s legal authority to make the change, he said he doubts there is a scandal over it.

“I think this is something that no one will argue with,” Levine said. “The IRS says a lot of people complain about this, so we will do what everyone wants.”