CARES Act suspends RMD for 2020

| March 31, 2020
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The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law on March 27, 2020.1 This bill contains provisions for many different kinds of relief during this difficult time, but we are writing to you today because you have a Required Minimum Distribution in 2020.

The CARES Act suspends Required Minimum Distributions for the tax year 2020 for owners of Traditional IRAs as well as Inherited (Beneficiary) IRAs. What does this mean for you?

Owners of Traditional IRAs:

  • Many retired people who have RMDs need to take income from their IRAs (or other qualified accounts) to cover living expenses. If this is the case for you, we recommend that you review your current income needs to see if you can reduce the amount you receive from your IRA, even if just for a few months.
  • If you have not taken your RMD yet, you are no longer required to take any amount of money out of your qualified accounts for 2020.
  • If you have already taken all or a portion of your RMD, there are a couple of options available based on your individual circumstances:
    • If you have taken all or a portion of your RMD within the last 60 days and still have the funds available in your bank account, if you so desire, we can assist with a partial or full 60-day-rollover of the RMD back into your IRA. Another option would be to complete a Roth Conversion (and invest the RMD amount into your existing or a new Roth IRA).2
    • If you took a distribution from your IRA early in the year, you might still be able to roll this back into your IRA, if you can demonstrate that you qualify for the CARES Act “Coronavirus-Related Distribution.”3 The qualifications for a Coronavirus-Related Distribution are4:
      • You, your spouse or dependent has been diagnosed with the coronavirus.
      • You’ve experienced adverse financial consequences as a result of being quarantined, furloughed or laid off, or your work hours have been reduced.
      • You’re unable to work because of a lack of childcare.
      • You’ve had to close or reduce the hours of a business as a result of the virus.
      • You’ve been financially impacted by other factors determined by the treasury secretary.

Owners of Inherited (Beneficiary) IRAs, including Beneficiary Roth IRAs (under the 5-Year Rule):

  • If you have not taken your RMD yet, you are no longer required to take any amount of money out of your Inherited IRA for 2020.
  • Unfortunately, there is no provision for putting already completed distributions back into your Inherited IRA.3 
  • If you have a Beneficiary Roth IRA that you inherited in 2015-2019, before the CARES Act passed, under the “5-Year Rule” you would have been required to fully distribute this account before December 31st of the fifth year after inheritance. The CARES Act has extended this deadline by one year, so you now have six years to fully distribute your Inherited Roth IRA.3 
  • As of this writing, the CARES Act does not seem to make any changes to the new 10-Year Rule for IRAs inherited in 2020.

Strategies to remember:

  • If you think you might be in a lower tax bracket this year, it still might be a good idea to take some income from your IRA. 
  • Now is also a great time to do Roth Conversions, whether you have already taken your RMD or not.

Since this bill was just passed a few days ago as of this writing, we are still reviewing it and will continue to pass along relevant news to our clients. If you have any questions about your Required Minimum Distribution, or need to make any changes, please give our office a call at 317-882-7675 and ask to speak with Mikayla (the RMD Coordinator) or to an advisor.

Sources:

  1. The CARES Act: https://assets.documentcloud.org/documents/20059055/final-final-cares-act.pdf
  2. https://www.forbes.com/sites/bobcarlson/2020/03/28/ira-and-retirement-plan-changes-in-the-cares-act/#3faac08f34f5
  3. https://www.kitces.com/blog/analyzing-the-cares-act-from-rebate-checks-to-small-business-relief-for-the-coronavirus-pandemic/
  4. https://www.washingtonpost.com/business/2020/03/30/coronavirus-stimulus-cares-act/
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