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Summary of New Guidance from IRS on the CARES Act

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Earlier this week, the IRS released new guidance regarding IRA rollovers in the wake of the CARES Act and coronavirus pandemic. The new guidance allows more flexibility for those who had already taken part, or all of their Required Minimum Distribution (RMD) in 2020.  There are two primary groups of people who may benefit from the new guidance:
1.    Individuals that made an RMD withdrawal in January 2020.
2.   Beneficiaries that made an RMD withdrawal from an inherited IRA this year.

As part of the CARES Act, individuals previously required to take a minimum distribution from an IRA, Qualified Plan, or even an inherited IRA were relieved of that requirement for 2020. As a form of tax planning, many individuals, acting on recommendations from their advisor, took advantage of the existing 60-day rollover rule to rollback IRA distributions that had been taken in 2020. However, since the CARES Act was announced in late March, many distributions taken in January were not able to be rolled back. Furthermore, inherited IRAs do not benefit from the same 60-day rules and were not able to undo any actions that had already been taken. The guidance recently issued by the IRS has provided for significant, although temporary, flexibility regarding these previously rigid rules.

Previously, rollovers had to be completed within the framework of the traditional “60-day rollover” rules (which, as the name suggests, stipulate you can only rollover funds that have been distributed within the past 60 days). The new guidance indicates that the 60-day rollover rules are being suspended and that all distributions taken since January 1, 2020 are eligible to be rolled back, so long as the rollover is completed by August 31.

Additionally, under the traditional rollover rules, individuals are only allowed one 60-day rollover every 365 days. Consistent with the above, the new guidance states that until August 31, any rollovers will not be treated as a 60-day rollover; therefore, all individuals are able to reassess their situation, even if they have already completed a rollover.

Lastly, inherited IRAs were previously excluded from this tax planning opportunity as 60-day rollovers do not apply; however, the new guidance confirmed that the suspension of the 60-day rollover rules means inherited IRAs are eligible to participate. The new language specifically allows for a whole new group of individuals to take advantage of these rules, which could have a meaningful tax impact.

Our team is currently reviewing IRA distributions taken this year and will reach out to clients as appropriate to discuss applying the new guidance to their unique situations. Please feel free to share this information with family and friends as it could be beneficial to their tax planning and financial well-being. The Foster & Motley team is here to help guide you through these ever-changing times and will continue to provide updates as available. Please don’t hesitate to reach out to any member of our team!