Normally distributions from IRAs that are required minimum distributions aren’t eligible to be rolled over. Required minimum distributions are amounts that are required to be distributed that are based on the life expectancy of the account owner once the account owner reaches age 70 ½ or usually based on the initial beneficiary’s life expectancy for an inherited IRA account.
As a relief measure, the CARES Act suspended required minimum distributions for 2020. The reason was the value of many IRAs had fallen and distributions would deplete the value of the account. The CARES Act was passed on March 27, 2020, so many IRA owners and beneficiaries had already taken distributions.
In addition to the prohibition from rolling over required minimum distributions, there are two other restriction blocking potential rollovers of the distributions. (1) Beneficiaries of inherited IRAs are prohibited from making rollovers and (2) Taxpayers are limited to one IRA rollover for a 12-month period.
The IRS provided additional relief from these requirements in Notice 2020-51. The IRS designates restoration of 2020 IRA required minimum distributions as “repayments.” As repayments, the restoration of the funds to an IRA is not a rollover. Since they are not rollovers, beneficiaries of inherited IRAs are permitted to make restorations and the limitation to one IRA rollover for a 12-month period doesn’t apply.
In order to qualify for this relief, a restoration must be completed by August 31, 2020.
If the deadline is missed, the only way to restore the funds will be as a rollover, subject to the once in a 12-month period limit and not available for inherited IRA accounts.
If you have a question about this matter, consult your tax advisor.