2023 Rollovers Extended (Sort of)

Take-Away: For those individuals born in 1951 who thought that they had to take their first required minimum distribution (RMD) starting in 2023, there is some relief, but only if they act by September 30, 2023.

Background: We are all too familiar with the rules that permit a the 60-day rollover, which is in effect a deadline for distributions taken from a retirement account or an IRA to be moved into another retirement account to avoid having the distribution be subject to tax (and possibly the 10% penalty for a distribution prior to age 59 ½.). For this year only, some retirement plan distributions can be rolled over into a retirement account or IRA after 60 days and thus avoid immediate taxation.

IRS Notice: In IRS Notice 2023-54, published on July 14, 2023, the IRS announced that it would extend the 60-day rollover deadline for IRAs and other retirement accounts for owners who were born in 1951 and who received distributions in 2023 that were not required. This extension arises because the SECURE Act 2.0 delayed their required beginning date (RBD) from 2023 to 2024. Specifically, if an IRA owner, born in 1951, received a distribution between January 1, 2023 and July 31, 2023, and the account owner wants to repay that ‘unwanted’ distribution, that rollover can be made by them before September 30, 2023, even though sixty days (or longer) has passed. The IRS’s concern is that with the enactment of the SECURE Act 2.0 in late December 2022, some IRA custodians could have inadvertently paid a required minimum distribution (RMD) to the account owner that was not technically an RMD due to the SECURE Act 2.0’s change to the RBD by extending it one year.

Example: John, born in 1951, turns 72 this year. Late last year John met with his IRA custodian and made arrangements for John to receive his first required minimum distribution (RMD) from his IRA on January 10, 2023 when John is traveling to and spending some of his retirement time in Galapagos Islands. Accordingly, John’s first RMD was set up in late December 2022, just prior to the passage of the SECURE Act 2.0 which extended John’s required beginning date (RBD) from age 72 to age 72. In short, John’s first RMD will now be sometime in 2024 (not 2023.) The IRA custodian deposits John’s first RMD amount into John’s checking account on January 10, 2023. John now has until September 30, 2023 to repay, or rollover, the January distributed amount to John’s IRA, even though more than 60 days has long passed from the distribution to John’s checking account.

Conclusion: This 60-day relief is only available for those retirement account owners who were born in 1951 and who ‘jumped the gun’ with their first required minimum distribution (RMD) early into 2023. For those individuals who took their first RMD in the first half of 2023, they should be alerted to this limited opportunity to put their distribution back into their retirement account as the market continues to move in a positive direction.