The CARES Act, signed by President Donald Trump on 3.19.2020 waives RMD distributions for 2020.
This will help many Americans who were affected by the stock market drop due to the coronavirus paranoia.
Normally, Federal law would require individuals who were age 70 1/2 before the end of 2019 to begin taking required minimum distributions (RMDs) from their retirement plan in April of 2020. (Note that those who were younger than 70 ½ at the end of 2019 can wait until they turn 72 to take RMDs)
The amount of the distribution is based on the value of the account at the end of the previous year, but the funds you withdraw are treated as taxable income in the year you take the distribution. This would be more detrimental because the stock market values were much higher at the end of 2019. Although the market has rallied tremendously it still has not yet returned to the value at the end of 2019 [ DOW closed at 28,462.14 on 12.31.2019].
Currently as of this blog the DOW is at 23,876 - still way above the close of 2015 [18,312.39]
Recognizing this, the coronavirus relief bill known as the CARES Act [signed by President Donald Trump] waives the requirement that individuals take RMDs from their non-Roth IRAs and 401(k)s in 2020. This includes any 2019 distributions that would otherwise have to be taken in 2020.
Waiving RMDs will allow retirees to retain more of their savings. The waiver applies to individuals taking RMDs from their own retirement accounts as well as people who have inherited retirement accounts.
Generally, it is considered a good idea to not take a withdrawal if it's not necessary as leaving the money in the account allows it to continue growing tax-deferred. Taking a withdrawal can also increase your tax burden.
However, there are circumstances where it may make financial sense to take an RMD even if it's not needed, for example if you know you are going to be in a much lower tax bracket in 2020, but expect your tax bracket to increase in 2021, it might make sense to withdraw the money now so you can pay a lower tax rate.
If you have already taken an RMD distribution in 2020 you may have the option to return it to the account it came from or another retirement account.
Usually RMD's cannot be rolled over into another account but voluntary distributions can.
Since The CARES Act waived RMD's, they are now considered voluntary distributions. This means they can be re-deposited or rolled over into a new retirement account (including a Roth account) as long as you do it within 60 days.
The IRS has provided guidance, waiving the 60-day rule if you took an RMD between February 1 and May 15 as long as you roll over the RMD by July 15, 2020. This type of rollover can only occur once per year, so if you rolled over a distribution within the previous 365 days, you cannot do it again.
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Please note that the above is intended for information purposes only and is not considered tax advise or financial advice for anyone. Please consult your tax adviser.
