Late last year Congress passed a law aimed at softening the impact of the steep downturns in both the economy and financial markets.  Among other things, the Worker, Retiree, and Employer Recovery Act [WRERA] allows anyone who must ordinarily take a “required minimum distribution” [RMD] from a retirement plan or IRA to skip it this year.  The goal is to give their account time to recover from the drubbing it took in ‘08. 

Those affected include retirees who are age 70½ or older as well as individuals who inherited someone else’s retirement account. 

Unfortunately, amid all of the year-end holiday hoopla, a lot of folks never got the message.  By the time they did, it was too late: they had already taken their withdrawal.  Others, who have the money sent to them automatically, never thought to turn it “off.”

Bending the Rules… for ‘09

The problem is, the tax code specifically says that required minimum distributions can never be “rolled over,” that is, re-deposited into a retirement account- either the same or a different one.  Moreover, according to a different regulation that covers amounts that are eligible to be rolled over, you only have 60 days to accomplish this.  Those who took retirement plan withdrawals and later found out they could have skipped this year (and this year only), figured they were out of luck.

Now the IRS has granted relief:  a unique opportunity for an individual to roll the RMD amount back into their retirement account. This is available even if you received your withdrawal more than 60 days ago.  In fact, it applies to an RMD taken [[[any time]]] this year.

Unfortunately, it doesn’t help everyone.  And, there’s an additional wrinkle if the money came out of an IRA.

Doin’ the RMD Roll-Back

The largest group of individuals able to take advantage of this are seniors who, as previously mentioned, are at least 70½- the age at which you must generally  begin withdrawals from your own retirement accounts.(1) 

If you fall into this category, your RMD amount can be re-deposited into the 401(k), 403(b), IRA or other retirement account it came from.  If your company plan doesn’t accommodate this, then you can roll the money into an IRA.

This privilege also extends to spouses who are taking RMDs from a retirement account that was owned by their deceased husband/wife.

Notice that the maximum you can roll back into the retirement account is the amount you would have had to withdraw if required minimum distributions had not been suspended this year.  For example, if your 2009 RMD would have been $12,000, and you withdrew $20,000 from your 401(k) account, only $12,000 can be re-deposited.

Rollovers Limited for Some Accounts

While Congress suspended required minimum distributions for this year, it didn’t change other regulations that affect retirement plans.  As a result, these still apply.  For instance, CPA Barry Picker with the firm Picker and Auerbach in Brooklyn, NY, explains that “the law says IRA holders can only do one rollover per [calendar] year.”

This isn’t an issue if you take your annual RMD in a single check.  But if you have it broken down into monthly or quarterly amounts Picker says “you could roll only one of those checks back” into your IRA. 

For instance, say you have instructed your IRA custodian to divide your annual RMD of $12,000 into 12 equal monthly payments.  So far this year you’ve received 10 of them.  Because of the one-rollover-per-year rule, you can only roll $1,000 back into your IRA.

On the other hand, the one-rollover–per-year limit does not apply to other types of retirement accounts.  “If you’re taking monthly payments from your company plan, normally these are not [ever] eligible to roll over,” says Picker.  “But this year you can.”  Plus, you can roll over all of them, up to your RMD amount.

Suppose that in the previous example you were receiving your RMD in the form of monthly checks from your 403(b) plan (instead of an IRA).  In this case, the entire amount you have received so far this year- $10,000- can be rolled back into the plan or an IRA.

Rollover Deadline

Everyone seems to have their own reasons for when they like to receive their annual required distributions.  For some, it’s early in the year.  Others want periodic checks.  Typically, those who don’t need the money wait as long as possible and take their RMD at the end of the year.  Still others, such as my mother-in-law, use their RMD as a surrogate “Christmas club” account, and schedule it for mid-to-late November- just in time for holiday shopping.

If you already took a 2009 required minimum distribution and would like to re-deposit the money into your retirement account don’t dilly-dally.  Contact your retirement plan administrator or IRA custodian and find out what’s required.  You have until November 30^th or as long as 60 days from the date you received the money- whichever is later- to return the funds to a retirement account.

If your RMD is scheduled to automatically be paid to you late in the year, don’t wait until you get the check and then figure you’ve got two months to roll it back. Things happen. Such as, the market takes off and you lose the full benefit because some of the mutual fund shares in your IRA had to be liquidated to cover your withdrawal.  Or, you forget to do the rollover.  Or, you end up in the hospital and miss the 60-day window. 

CPA Bob Keebler of Baker Tilly in Green Bay, Wisconsin, says you’d “be better off just to not take the money.  It would make it easier.”  Bottom line: if you don’t need the cash, contact your plan administrator or IRA custodian and cancel this year’s RMD before it can be automatically sent to you.

No Rollover For…

If you inherited the retirement account of someone who died last year or earlier and that individual was not your wife or husband, you, too, have the option of skipping this year’s required distribution.  (Regardless of age, a non-spouse beneficiary of a retirement account must start RMDs by December 31^st of the year after the account owner died, or empty the account no later than 5 years after the year of death.)

Let’s say you were the beneficiary of Uncle Henry’s IRA. In memory of Uncle Henry, each year you take your RMD on his birthday, which happened to be May 15^th.  Since you’re 42, working full-time, and really don’t need the money (or want pay income tax on it), you’d like to roll it back into Uncle Henry’s IRA.

No luck.  While you could have skipped this year’s RMD, “if you already took the distribution, you can’t put it back,” says Picker.  “Non-spouse beneficiaries never could and still can’t do a rollover.”

1. There is an exception for those who are 70½ or older and still working.  Provided you do not own 5% or more of the company you’re working for, you can delay starting RMDs from your employer retirement plan until you retire.