The Coronavirus Aid, Relief, and Economic Security (CARES) Act which was signed into law on March 27, 2020, waives required minimum distributions (RMDs) for 2020. With a few exceptions, the waiver applies to accounts of both original owners and those who inherited accounts.

Before the SECURE Act passed, retirement accounts like IRAs and 401(k)s were subject to RMDs once the owner reached age 70.5. The SECURE Act raised the age that withdrawals start to 72.

As a result of this waiver included in the CARES Act, there are no required RMDs for 2020. Also, please note that RMDs do not apply to Roth IRAs that you hold as the owner.

The CARES Act RMD waiver applies to:

  • The 2020 RMD for taxpayers who turned 70½ before 2020.
  • The 2020 RMD for taxpayers who turned 72 in 2020.
  • The RMDs for beneficiaries.

What You Should Do Now

The steps that you should take now depends on whether you want to have distributions made from your retirement account for 2020. These include:

If no distribution has been made and you do not want distributions made for 2020: If you do not want to take distributions for 2020, there is no action required unless you have an automatic/prescheduled distribution arrangement with your financial institution. In that case, you must contact your financial institution and instruct them that you no longer want those distributions to be made from your account(s).

If you already took distributions in 2020 and want to return those amounts to your retirement account: The simplest strategy is to do a rollover. This lets you roll money within 60 days from one type of retirement account to another (you may be familiar with this if you left a job and rolled over your employer 401k to an IRA). Normally, an RMD cannot be rolled over, but the CARES Act essentially changed 2020 RMDs into eligible rollover distributions, which can be rolled over within 60 days of being received.

Some may have already taken an RMD before the CARES Act was enacted and did not have the opportunity to roll the RMD back into their retirement account before the 60-day rollover period had already expired. That issue was alleviated by the declared disaster provisions extending the rollover period. Thus, any 60-day rollover period that ends on or after April 1, 2020, and before July 15, 2020, is extended through July 15, 2020. This means that if you took a distribution after January 31st, you can roll it back into the retirement plan and avoid being taxed on it in 2020, if you do so by July 15, 2020.

Other Considerations:

  • Any part of the distribution from a traditional IRA or qualified retirement plan that you don’t roll over will be taxed.
  • Only one IRA-to-IRA rollover is allowed within any 12-month period.
  • Unfortunately, those who took their RMD in January do not benefit from the extension to July 15, 2020 (unless the IRS provides additional relief).

We Are Here to Help You

We anticipate that you will have questions about this new tax law; including how it affects your RMD and retirement savings. We are here to help you. Please do not hesitate to contact your ALL tax advisor or call us at 617-738-5200.

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