New Guidance from the IRS

On June 24, 2020, the IRS released Notice 2020-51. The notice allows advisors to fix required minimum distributions (RMDs) that came out of client accounts before the passage of the CARES Act earlier this year.  Learn more about the recent RMD changes in our FinPlan Friday conversation with Joe.


FinPlan Fridays

In our video blog series, FinPlan Fridays, Covisum® Founder and President, Joe Elsasser, CFP®, offers his take on the issues financial advisors see every day. Joe is a practicing financial planner with a unique perspective into the challenges for which Covisum provides technology solutions. Join us on the first Friday of every month for FinPlan Fridays, and get helpful tips to grow your financial planning practice. 


Hi, this is Joe Elsasser, President and Founder of Covisum, and also a practicing financial advisor, and welcome to another FinPlan Friday. Today, we're going to discuss briefly IRS Notice 2020-51 that just came out on June 24. Basically, what it allows you to do is fix required minimum distributions that had come out of client accounts before the passage of the CARES Act earlier this year. Now, you've probably read articles about a variety of ways to fix those minimum distributions that had come out prior to the passage of the CARES Act, including indirect rollovers. Of course, a variety of those techniques have their own drawbacks for example, the once per year rule for indirect rollovers. This notice really clarifies and allows you to fix those minimum distributions and not just the ones that were eligible for an indirect rollover.

Under this new IRS notice, you are able to replace a required minimum distribution from an inherited IRA. So, while those were not eligible for an indirect rollover under this new IRS notice, you are able to put those back into client accounts and effectively avoid that income hitting the client's return this year. It's a really big notice. I'd suggest you download Notice 2020-51.

Up until the end of August of 2020, you are able to replace any amounts that have come out of an IRA, that would have otherwise been considered a required minimum distribution due in 2020, back into those accounts in order to avoid that showing up on the client's return. Now, the implication for advisors is to be able to take a quick step back from a client's retirement income plan and determine whether or not that IRA income is desirable on the client's return, and sometimes it will be. Sometimes they'll be in a situation where their minimum distributions are considerably more than they would want, and so leveling out the minimum distributions over a period of years, doesn't create any great harm. In other situations, you may be in a spot where that minimum distribution is causing Social Security income to be taxed that otherwise might not be taxed. So, getting that off of the return can have a really significant positive impact on the client's retirement income plan.

Ideally you'd revisit each client who had a required minimum distribution come out early in the year and take a look at what the likely year end tax situation will be. If they're better off not having taken that distribution, get it back into the account by August 31. 

How Can Covisum Help?

Our Tax Clarity® software allows you to look at a client's retirement tax landscape to quickly identify sub-optimal tax situations and show clients how to make retirement decisions in the most tax-efficient way. Try Tax Clarity for free for 10 days.