In response to the COVID-19 pandemic and volatile economic climate, legislation was recently passed to waive 2020 Required Minimum Distributions for all retirement accounts (Coronavirus Aid, Relief, and Economic Security Act, “CARES Act”). It is important to review your personal situation and options with your tax professional prior to taking any action. This is for informational purposes only and should not be construed as tax advice.
What types of Required Minimum Distributions (RMDs) are eligible for this waiver?
All retirement accounts, Traditional IRAs, SEP IRAs, and SIMPLE IRAs, as well as 401(k), 403(b), and Governmental 457(b) plans which would have otherwise been required to take a minimum distribution in 2020 are eligible for this waiver. This also includes beneficiary IRAs as well as individuals who turned 70.5 in 2019 but postponed taking their first RMD (otherwise required by April 1st, 2020).
Benefits of Waiving Required Minimum Distributions (RMDs)
- Investors can reduce their 2020 tax bill by not taking distributions. If taken, the distribution is subject to ordinary income taxes.
- By retaining funds in an IRA account there is the potential for that money to continue to grow tax deferred.
Electing to Take Distributions in 2020
IRA account holders can continue to elect to take distributions, subject to traditional withdrawal rules. Special exemptions have also been made to allow for individuals under 59.5 years old to take withdrawals up to $100,000 penalty free.*
Qualified Charitable Contributions
Individuals can still use their pre-tax funds in IRAs to make a Qualified Charitable Distribution in 2020. Things to keep in mind:
- To make a Qualified Charitable Distribution, investors must be at least 70.5 years old, which was not raised with the RMD age to 72 years old with the passing of the 2019 SECURE Act.
- Qualified Charitable Distributions are limited to $100,000 per year.
- Funds must be distributed directly to the qualified charity.
RMDs Already Taken in 2020
Investors who took an RMD early in the year may be out of luck unless they’ve been impacted by COVID-19.* If the distribution was taken within the last 60 days, they may be able to initiate a 60-day rollover back into their IRAand not treat it as a taxable distribution for 2020. A 60-day rollover is allowed by the IRS once per calendar year.
*Speak to your tax professional about these potential strategies to ensure compliance with the CARES Act
CONTACT YOUR VIVALDI ADVISOR WITH ANY QUESTIONS REGARDING THIS RULE.