RMD relief for 2019 included in Heroes Act

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  • #6600
    Alan S.
    Participant

    NOTE: This is only PENDING legislation!
    There is a provision in the Heroes Act passed by the HR that waives ALL 2019 RMDs and allows for rollback through 11/30/2020. That would take care of 2020 RMDs distributed in January, but adds the major leap of waiving 2019 RMDs as well. 60 day rollover deadlines and one rollover limitations will not apply. But any non spouse inherited IRA distributions still cannot be rolled back.

    No doubt, if this provision is included in an eventual bill that is passed, many people will decide to turn all or part of their already distributed 2019 RMDs into conversions instead of rolling them back and filing a 1040X for a 2019 refund.

    • This topic was modified 5 days, 22 hours ago by Alan S..
    #6602
    dienerte
    Participant

    Alan,
    I took my 2019 RMD (doing some of it in the form of a QCD) and did an additional Roth conversion up to near the $170K IRMAA level. So, if I understand you correctly, and if this ultimately becomes law as currently indicated, I could somehow do a Roth conversion of the 2019 RMD taxable portion. And this action does not appear to need any amended return since the amount that might be converted is already taxed. But how would I get my investment firm (VG) to convert and report such conversion to a Roth IRA, especially since it would be done in 2020? Anyway thank you for posting as much as you have and I will continue monitoring this post.

    • This reply was modified 5 days, 20 hours ago by dienerte.
    #6606
    Alan S.
    Participant

    It would require a 1040X because a conversion must be reported on Form 8606. Because the distribution was in 2019, a rollover however late would also be reported on the 2019 return.

    Note that even if this provision passes into law, like some other CARES Act provisions, retirement plans are NOT REQUIRED to adopt these provisions. And it’s possible that some plan custodians will take their time to decide should the provision pass. For custodians, 2019 roll backs are even more disruptive to their processing platforms than the 2020 RMD waiver.

    Presumably, if VG accepts 2019 RMD rollovers, they would report them like an ordinary 60 day rollover conversion made in December and rolled into the Roth in January. Form 5498 would show a 2020 conversion for purposes of the conversion 5 year holding period, but the conversion would be reported by the taxpayer on a 2019 or 2019 amended return using Form 8606. The IRS might also add additional reporting changes. Note that these are not 3 year repayments like CRDs, rather they must be completed by 11/30/2020 and the taxes paid with the 2019 return.

    Note that you would leave your 2019 QCD as is, but since 2019 RMDs would be waived the QCD saves you less. However, if you did the QCD out of order, it no longer matters since with no 2019 RMDs, a QCD could be done anytime in relation to other distributions.

    If this provision becomes law, it will take VG some time to decide how to deal with rollovers, whether to accept them, and how to process them.

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