CARES Act Suspends Required Minimum Distributions for 2020

The new CARES Act (which stands for Coronavirus Aid, Relief, and Economic Security) that was just signed into law provides a large number of aid provisions, including one that will help retirees and holders of inherited retirement accounts to lower their 2020 tax bills. For 2020 only, Required Minimum Distributions (RMDs) from IRAs, employer plans like 401ks and 403bs, and even inherited IRAs have been suspended. This means, if you don’t want or need to take your RMD this year, you don’t have to…even if you turned 72 this year. If you’ve already taken your RMD, you may have some options. You have 60 calendar days (from the date of the original distribution) to put the distribution back into an IRA or another qualified plan to avoid paying taxes on the income. This may work well for those who don’t necessarily need the income.

Unfortunately, for those who took their RMDs more than 60 calendar days ago, you will not have the ability to roll those back into your retirement accounts. However, you may still have the option to convert your distribution into a Roth IRA. If you choose this route, you’ll still owe income taxes on the amount you withdrew, but the funds could be placed in a Roth IRA and allowed to grow tax-free. Keep in mind, this type of Roth conversion is not available to holders of inherited IRA accounts.

If you still need to take your RMD for 2020, or even if you need to take out more than the RMD, this can still be done. This suspension only comes into play for retirement account holders who don’t need or want the extra income in 2020.

- Margaret Gooley, CFP®, Worley Erhart-Graves Financial Advisors