Clock is ticking on IRS relief for required minimum distributions
In the CARES Act, passed on March 27, 2020, Congress eliminated this year’s required minimum distributions from IRAs, 401(k)s, and 457(b) and 403(b) plans. The end of March, however, was too late for people who had already taken their distributions for 2020.
To remedy this situation, the IRS issued Notice 2020-51 on June 25, which allows taxpayers to replace required minimum distributions taken year-to-date. Taxpayers now have until Aug. 31 to replace the funds, and this includes replacing funds from an inherited IRA. Furthermore, taxpayers can replace multiple distributions because the "one rollover per year" provision does not apply for 2020.
Why does this matter to you and your philanthropic clients?
- First, the ruling itself is unusual, in that the IRS seems to have engaged in what could be construed as lawmaking. As noted in this Kitces.com article: "Ultimately, the new guidance just released by the IRS provides a fair and favorable outcome for people who took their RMDs earlier this year, as those individuals should not be penalized for being proactive and complying with the RMD rules early during the year. However, this is an unprecedented and potentially troubling move by the IRS, given that they do not actually have the legal authority to make this change."
- Second, for your clients over 70 ½ who were already planning to give their required minimum distributions to charity this year, nothing has changed about their ability to do so. Be sure to take a careful look at each client's 2020 tax situation. It could still be most advantageous for a client to make a Qualified Charitable Distribution instead of forgoing the required minimum distribution or replacing the funds through the special rollover provisions now in place for 2020.
- Finally, for clients who will still benefit from making a Qualified Charitable Distribution this year, keep in mind that IRA assets can be used to establish or contribute to a designated fund or scholarship fund at Akron Community Foundation. This allows your clients to support their favorite causes in perpetuity while leaving more tax-advantageous assets to their children and grandchildren.