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  • Evan Werckenthien

2020 RMD and The CARES Act

As we get closer to the 4th quarter, which is when many Americans take their Required Minimum Distribution (RMD), it is important to remember the changes enacted in The Coronavirus Aid, Relief, and Economic Security (CARES) Act in regard to the 2020 RMD requirements.


The CARES Act enables taxpayers with RMDs due in 2020 from IRAs, inherited IRAs, and defined contribution retirement plans to skip this year’s distribution. There are no penalties or negative tax consequences associated with this waiver. Below is more information on reversing an already distributed 2020 RMD, how this applies to inherited IRAs, and what to do if you haven’t taken your 2020 RMD.


Reversing an already distributed 2020 RMD

If an individual has already taken their RMD, distributions can be repaid back into their account by August 31st to avoid paying tax on the distribution. However, if money was withheld during the original RMD, the withheld amount cannot be returned until you file your taxes for 2020. This is for IRAs and defined contribution plans only, not inherited IRAs.


Inherited IRAs

As if inherited IRAs were not already complicated enough, the CARES Act changed beneficiary payout requirements. For more information on those new requirements, please see the previous article titled “Coronavirus Stimulus Plan”. For non-spousal inherited IRAs:

  • When the original account owner died prior to December 31st, 2019, the 2020 RMD can be skipped.


  • When the original account owner died after December 31, 2019, beneficiaries are now subject to the new 10-year distribution rule. However, that 10-year period does not start until the following year. If the owner died in 2020, that would start in 2021. So, in this case, the 2020 RMD would not be needed.


Strategies if a 2020 RMD has not yet been taken

The most important question is, “Do I need the money?” If you do, it may make most sense to take the distribution as planned. However, consider the tax consequence in taking it from an IRA versus other accounts like a Roth IRA or non-retirement account.

If the money is not needed, there are some strategies that can be used:

  • Make a Conversion: Converting money into your Roth IRA from a traditional IRA may make sense if you expect to be in a higher tax bracket in the future. A conversion will also lower future RMD distribution amounts.


  • Make a Qualified Charitable Distribution: Money is paid directly from your IRA to a qualified charity. This will reduce your income and therefore your taxes due.


  • Do Nothing: By not taking money from IRA accounts in 2020, taxable income would be lowered. This also would give your assets time and the opportunity to recover and grow from the volatile 2020 markets.


The CARES Act has wide sweeping changes throughout tax law and has provided much needed assistance to millions of Americans. In 2020, months feel like years and it is easy to have forgotten about these RMD changes that were enacted just a few months ago. It is important to reevaluate your 2020 RMD plan with a Financial Planner and Accountant.


Please feel free to email or call me with any other concerns or questions,


Evan Werckenthien, CFP®


317-587-0858

Evan@EWwealth.com





https://www.irs.gov/newsroom/irs-announces-rollover-relief-for-required-minimum-distributions-from-retirement-accounts-that-were-waived-under-the-cares-act

Disclosure:

Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a broker-dealer, member FINRA/SIPC. Advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. E.W. Wealth Management and Cambridge are not affiliated. The information in this email is confidential and is intended solely for the addressee. If you are not the intended addressee and have received this email in error, please reply to the sender to inform them of this fact. We cannot accept trade orders through email. Important letters, email, or fax messages should be confirmed by calling 317-587-0858. This email service may not be monitored every day, or after normal business hours. Cambridge does not provide tax advice.

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Securities offered through Registered Representatives of Cambridge Investment Research, Inc., a broker-dealer, member FINRA / SIPC . Advisory services offered through Cambridge Investment Research Advisors, Inc., a Registered Investment Adviser. E.W. Wealth Management and Cambridge are not affiliated.

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