IRS retirement plan distribution repayment deadline approaching

Retirement savers looking to take advantage of a provision that relieves certain people of taking required minimum distributions this year need to take action by the end of the month.

The CARES Act allowed individuals to skip taking their required minimum distribution in 2020, but some people may have already received it prior to the onset of the policy.

Therefore, the IRS said it will allow people to roll that cash back into certain defined-contribution retirement plans by Aug. 31. That extended the previously announced 60-day rollover period, which was scheduled to expire last month.

This action would not be subject to the one-rollover-allowance-per-12-month limit or other restrictions on people with inherited IRAs.

IRS PERMITS MORE AMERICANS TO TAP RETIREMENT ACCOUNTS WITHOUT PENALTY

During an average year, the tax agency generally allows most pre-retirement payments to be rolled over into another retirement plan or IRA within 60 days, which often helps people defer tax payments. An individual cannot make more than one rollover from the same IRA account within a 12-month window. You also can’t make a rollover during this one-year period from the IRA to which the distribution was rolled over.

Typically, account owners must take required minimum distributions once they turn 72. And people who inherited IRAs have to take distributions annually regardless of their age.

An individual who turned 70 1/2 in 2019 would have been required to take their first minimum distribution by April 1.

WORKERS TAP RETIREMENT SAVINGS TO COPE WITH CORONAVIRUS PANDEMIC

The IRS’ ruling applies to anyone who was supposed to take a minimum distribution from certain plans, like a 401(k), in 2020, but it does not apply to defined benefit plans.

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Lawmakers, who are negotiating the terms of another potential stimulus package, have also eased restrictions on retirement plan withdrawals, which is a move that financial experts recommend avoiding, if possible.

Legislation was approved that gives people greater flexibility to tap retirement accounts as a means to help them weather the financial effects of the virus. People can take up to $100,000 from their 401(k) retirement stash without being subject to the 10 percent penalty if the funds are used for coronavirus-related financial needs. People who do this will, however, have to pay income taxes on the money.

People do, however, have three years to repay a coronavirus-related distribution in order to undo the tax consequence.

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