Dear Clients and Friends,
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), signed into law on March 27, 2020, includes provisions that temporarily relax several key retirement account rules. One of these provisions is a waiver of required minimum distributions (RMDs) in 2020. Here’s what you need to know.
RMD Rules
Generally, once you reach age 72 (or age 70½, if you reached that age prior to December 31, 2019), you are required to withdraw a certain amount of money from your IRA, 401(k), 403(b), or other qualified retirement plan account each year.
The CARES Act Waiver
The CARES Act has waived the mandate to take an RMD in 2020 from your IRA, workplace defined contribution plan (i.e., 401(k), 403(b)), or inherited IRA (IRA BDA). In addition, individuals who reached age 70½ in 2019 and who had deferred their 2019 RMD until the required beginning date of April 1, 2020, may waive both that RMD and their 2020 RMD.
RMDs from defined benefit plans and cash balance plans are not eligible for the waiver, nor are RMDs taken before December 31, 2019.
Keep in mind that you don’t have to leave the money in your account. You certainly may take your RMD as usual if you wish, especially if it is needed for your household cashflow, but there are potential benefits to forgoing the distribution this year.
Benefits to Leaving the Money in Your Account
Because RMDs are calculated based on your account value at the end of the prior year (i.e., as of December 31, 2019), you may be withdrawing a much larger percentage of assets from your account than you otherwise would. This is because financial markets have fallen, in some cases, more than 30 percent from their recent highs, which likely has also depressed portfolio values.
Not taking an RMD in 2020 may help you avoid a bigger tax bill and potentially benefit more from a market recovery.
What If You Already Took Your RMD?
If you have already taken your 2020 RMD (or your 2019 RMD, for those who deferred their first distribution until 2020), you may roll the distributed assets back into your account within 60 days without taxes or penalties.
If it has been more than 60 days since you took your 2020 RMD, the IRS has issued Notice 2020-23. Under that guidance, time-sensitive actions due April 1, 2020, have been extended to July 15, 2020. Therefore, distributions taken between February 1, 2020, and May 15, 2020, will be eligible for a 60-day rollover until July 15, 2020. Distributions taken before February 1, 2020, are no longer eligible for a 60-day rollover contribution.
What If Taxes Were Withheld from a Previously Distributed 2020 RMD?
If the 60-day rollover applies to your distribution, the gross amount can be returned as a rollover contribution, including the amount your received and any taxes previously withheld.
Generally, firms cannot reverse tax withholdings after a distribution is executed. These taxes paid will be reported on your 2020 Form 1099-R and may be refundable when filing your 2020 tax return.
As with any newly introduced legislation or change to financial transaction rules, the situation is fluid and additional clarification may be coming from regulatory agencies. As such, we recommend you consult a tax preparer, professional tax advisor, or lawyer. Although we go to great lengths to make sure our information is accurate and useful, this material should not be considered tax or legal advice.
Feel free to share this article with friends and family. This is an important topic to understand for tax and cash flow planning purposes.
We wish all of you a lovely and safe holiday weekend.
-Amy & the MORWM crew
Amy Killeen
Financial Planning Associate
MOR Wealth Management, LLC
1801 Market Street, Suite 2435
Philadelphia, PA 19103
Main: 267.930.8300 | Direct: 267.930.8304 | F: 267.284.4847 |
amy.killeen@morwm.com | www.morwm.com
The majority of this content was written and distributed MOR Wealth Management, all rights reserved. Securities offered through Commonwealth Financial Network, Member FINRA/SIPC. Fixed insurance products and services offered through CES Insurance Agency.