Time is Running Out to Replace Your RMD

Required minimum distributions were suspended under the CARES Act, but if you already took one and want to replace it, it must be done before it’s too late.

The coronavirus pandemic and the resultant financial/economic collapse have hurt a lot of people and left the government scrambling to do (or not do) something to mitigate the adverse economic effects felt by many FedSmith readers. Unfortunately, it has done nothing to alleviate the hyper-partisanship coming from both sides of the aisle. At the risk of receiving snarky comments, I’m tempted to emulate Mercutio in Romeo and Juliet and shout, “A plague on both your houses”!

One of the things done to ameliorate financial suffering was to do away with the requirement to take minimum distributions from qualified accounts for 2020. RMDs, as they are called, are required to be taken by those who turned 72 in 2020. They also apply to those who turned 70 ½ in 2019 and earlier years. 

The suspension of 2020 RMDs didn’t occur until the CARES Act was enacted in late March, a time when many folks (including me) had already taken their 2020 RMD. Subsequently, the IRS allowed folks who had taken their 2020 RMD to replace it in their IRA or plan by August 31. They also temporarily suspended the limit that required a period of 365 days elapse between rollovers (called by many the “one per year” rule). 

So far, so good. But the procrastinators among us may not have completed returning their RMDs to their IRAs or plans yet, and August 31 is upon us. All you need is a delay in moving the money back into your qualified account (not an uncommon occurrence) and you’ve missed the deadline.

Is all lost? Maybe. There is a loophole that applies to what the CARES Act calls “qualified individuals”. Because I’ve already quoted Shakespeare in this article, I’ll now paraphrase Jeff Foxworthy. “You might be a qualified individual if…”

  • You are an individual diagnosed with the SARS-CoV-2 or COVID-19 virus by a test approved by the CDC;
  • You are an individual whose spouse or dependent is so diagnosed;
  • You are an individual who experiences adverse financial consequences on account of the individual, the individual’s spouse, or a member of the individual’s household:
    • Being quarantined, being furloughed or laid off, or having work hours reduced due to the virus;
    • Being unable to work due to lack of childcare due to the virus;
    • Having a reduction in pay (or self-employment income) due to the virus; or
    • Having a job offer rescinded or start date for a job delayed due to the virus; or
  • You are an individual who experiences adverse financial consequences on account of closing or reducing hours of a business owned or operated by the individual, the individual’s spouse, or a member of the individual’s household due to the virus.

If you meet this definition, any “Coronavirus Related Distribution” (CRD) can be repaid tax-free within three years to a qualified IRA or plan. CRDs can be up to $100,000, which is more than an RMD would be. So, all is not lost if you are a qualified individual.

If you’re not a qualified individual and you’ve not yet returned your RMD to your account, you better get busy and roll it over by Monday.

Agencies can request to have John Grobe, or another of Federal Career Experts' qualified instructors, deliver a retirement or transition seminar to their employees. FCE instructors are not financial advisers and will not sell or recommend financial products to class participants. Agency Benefits Officers can contact John Grobe at johnfgrobe@comcast.net to discuss schedules and costs.

About the Author

John Grobe is President of Federal Career Experts, a firm that provides pre-retirement training and seminars to a wide variety of federal agencies. FCE’s instructors are all retired federal retirement specialists who educate class participants on the ins and outs of federal retirement and benefits; there is never an attempt to influence participants to invest a certain way, or to purchase any financial products. John and FCE specialize in retirement for special category employees, such as law enforcement officers.