CARES Act: Required Minimum Distributions Waived For 2020

by Financial Design Studio, Inc. / March 31, 2020

The CARES Act- Required Minimum Distributions Waived For 2020 fee only financial advisor deer park barrington chicago draft

CARES Act: Required Minimum Distributions Waived For 2020

Required Minimum Distributions (RMDs) for 2020 are WAIVED; you do not have to take an RMD as you normally would.

Background: Normally, if you’re over Age 70-½ (or Age 72 starting in 2020) you have to take a Required Minimum Distribution (RMD) from your pre-tax retirement accounts, such as 401ks and IRAs. Under the CARES Act, you do NOT have to take an RMD in 2020.

Timing: The RMD waiver under the CARES Act only applies to Tax Year 2020.

Benefits:

By not having to take an RMD, you won’t have to pay federal, state, and local income taxes on the money you would’ve received from your RMD.
If you don’t need the money you’re normally required to take out of your retirement accounts, you have an extra year to leave the money in there to grow tax-free (depending on market conditions).

What if I turned 70-½ in 2019 and still haven’t taken my RMD for that tax year? Normally, you’d have to take your first RMD by April 15th of the year following the year that you turned 70-½. Under the CARES Act, if you turned 70-½ in 2019 and hadn’t yet taken your RMD for that year, you have until 2021 to do so instead of April 15, 2020.

What if I already took my 2020 RMD? If you’ve already taken your 2020 RMD and don’t need the money that was taken out, you have a couple of options to “roll” that money back into your retirement account:

If you took your RMD in the last 60 days, you can “roll” that money back into the IRA assuming you haven’t done another rollover in the previous 12 months
If you’ve been negatively affected by COVID-19, then you might be able to recharacterize your distribution as a Coronavirus-related distribution. [See section “Coronavirus-related Retirement Distributions”]

Please note: The rules around reversing a 2020 RMD that you’ve already taken are still a bit murky. If you’ve taken your 2020 RMD already and want to put the money back into your account, please consult with us or your tax accountant prior to doing so, so that we can ensure you don’t run afoul of the IRS.

Interested in the other areas of the CARES Act? We are breaking down these details by section in the following resource. You can click to the particular section you’re interested in directly below if you’d like to read the specifics of those first. We do encourage you to look through all of the sections that could potentially impact you since this is a very generous bill aimed at keeping our country’s economy strong during and after this pandemic.

Financial Design Studio CARES Act Summary

Like any benefit that becomes available to you it is critical to see if it makes sense to use the provisions allowed. While a benefit might make your temporary financial situation better, it might not be beneficial in the long term. However, those who need these provisions were created for are likely in immediate need to use the benefits until employment returns to normal.