Test 2: Once-per-year IRA rollover rule
Even if you qualify under the 60-day extension, there is yet another, lesser-known impediment that can still disqualify you from being able to roll the unwanted RMD funds over. It's known as the once-per-year IRA rollover rule. You can only do one IRA-to-IRA or Roth IRA-to-Roth IRA rollover per 365 days. It is not a calendar year. If you've done one of these rollovers where funds were distributed to you personally within the 365 days preceding the date you took your RMD, then you fail this test and the RMD cannot be rolled over.
This test only applies to rollovers between IRAs. It does not apply to rollovers between plans and IRAs. For example, if you took your unwanted RMD from a 401(k), the once-per-year rule is not a problem. In that case, if you qualify under the now extended 60-day rule, you have until July 15 to roll over the funds withdrawn between Feb. 1 and May 15. Similarly, if you took your RMD from your IRA and had, say, a 401(k) you could roll the funds back to, the once-per-year rule would also not apply.
The once-per-year rule does not apply to Roth conversions, either. If you qualify for a rollover under the extended 60-day rule but flunk the once-per-year rule, you can convert the funds to a Roth IRA. You will still pay the tax, but at least you can move the funds to a Roth where they will grow tax free.
I turned age 70 1/2 in 2019 and took my first RMD in 2019. Can that be waived or undone?
No. The waiver was only for RMDs due in 2020. If you turned age 70 1/2 in 2019, you were required to take your first RMD by April 1, 2020. The CARES Act waives any of your 2019 RMD that was not taken by Dec. 31. However, you could have already taken all or part of it in 2019. Any part you took in 2019 cannot be waived or undone.
What about the taxes that were automatically taken out — will I get those back?
Eventually, but not now. Taxes withheld cannot be returned. They are credited to your account. When you file your taxes for 2020 next year you will take credit for any withholding from your 2020 RMD (even if it was returned). If you don't want to wait until next year, you could decrease your 2020 estimated tax payments. Under new IRS relief guidance, your first two installments are not due until July 15, 2020. You could lower the amounts to make up for the withholding tax on your unwanted RMD.
Any other advice on this?
In my opinion: Relax. You can just sit back and de-stress about this for the time being. The unwanted RMD fate won't be determined until the year closes. It is likely — I hope and predict — that the IRS hears the cries of “unfair!” and soon provides blanket relief.
It did something similar back in 2009 when RMDs were also waived for that year after the 2008 financial meltdown. I'm hoping the IRS (if you're listening) will do that again and say that 2020 RMDs can be undone and rolled back over, period.
At a minimum, in my opinion, it should give everyone until July 15, 2020, to return any unwanted 2020 RMDs. This would be consistent with the other July 15, 2020, tax-related extensions the IRS has already granted. That would be fair and solve the unwanted 2020 RMD problem. Let's see what happens.