RMDs and the CARES Act - Adviser Investments

RMDs and the CARES Act

For many retirees, this may be the best news yet out of the current economic and market dislocations. Congress has passed a bill that says you don’t have to take required minimum distributions (RMDs) in 2020. In the $2-trillion CARES Act, Congress waived the RMDs that retirees typically must withdraw from their retirement accounts like 401(k)s and IRAs.

We gave you an overview of the new law last week, but today we wanted provide more details on its ramifications for RMDs—because as always, there’s a lot more to it than the headlines will tell you.

  1. Suspension of RMDs in 2020: The CARES Act eliminates RMDs from all qualified retirement accounts for all of 2020. This can have an extra benefit if you’ve just begun taking RMDs. If you turned 70 ½ in 2019 and waited to take your 2019 RMD until early this year, you may be able to effectively eliminate your RMDs for both 2019 and 2020, by returning the first and waiving the second.
  2. RMD Return Policy for 2020: What if you’ve already taken your RMD for the year? The IRS’ most recent guidance provides that RMD distributions made between February 1 and May 15 can be “rolled back” into your IRA by July 15. (Any distributions taken in January are not covered.) That said, you can only deposit one such withdrawal back into an IRA.

    Please also make sure to consult your accountant if you are paying quarterly estimated payments to the IRS to learn how waiving RMDs would impact your annual tax liability.

    If you don’t need the money for your living expenses, we recommend rolling the money back in. Not only will you save on income taxes for the year, but you will also allow your money in the account to continue growing for another year tax-deferred.
  3. Inherited IRAs: If you’re the beneficiary of an IRA, the rules are a little different. Both spousal and non-spousal beneficiaries can choose to waive their 2020 RMD if they haven’t taken it yet. But if you’ve already taken your RMD from an inherited IRA, you unfortunately can’t roll it back into the inherited account under the rules listed above. Spousal beneficiaries are able to rollover their RMD funds into their own retirement account, however. Non-spousal beneficiaries are simply out of luck.
  4. QCDs Still Available: Many retirees use qualified charitable distributions (QCDs) to lower their taxable income. While the CARES Act has suspended RMDs for the year, you can still make a QCD to a charity of your choice as long as you are at least 70½ when you make the contribution. If using QCDs to offset income is part of your tax strategy and you are also considering skipping your RMD this year, you may want to speak to a CPA or tax specialist about how it impacts your plans (see the next point as well). 
  5. Tax Planning: Since you don’t need to take your RMD in 2020, it’s possible that you are going to have significantly less taxable income this year than you did last. If that’s the case, you may want to consider a Roth conversion. The amount you convert from a traditional IRA will be taxed as ordinary income, but if you find yourself in a lower tax bracket this year, you’ll have more room to work with.

In addition to all the nuances we’ve mentioned above, if you, your loved ones or your business have been directly impacted by the coronavirus, some exceptions to the above rules may apply. We recommend you talk to your wealth management team here or another tax professional if that’s your situation.

There is a lot to absorb from the recent CARES Act, and we’ll continue to provide details on how the changes may affect you in the weeks to come. But if you have any questions regarding how the new RMD rules apply to you specifically, please get in touch with us. We are happy to assist.

About Adviser Investments

Adviser is a full-service wealth management firm, offering investment managementfinancial and tax planningmanaged individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trusts, institutions and foundations since 1994. Adviser Investments and its subsidiaries have over 5,000 clients across the country and over $8 billion in assets under management. Our portfolios encompass actively managed funds, ETFs, socially responsible investments and tactical asset allocation strategies, and we’re experts on Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To. To see a full list of our awards and recognitions, click here, and for more information, please visit www.adviserinvestments.com or call 800-492-6868.

This material is distributed for informational purposes only. The investment ideas and opinions contained herein should not be viewed as recommendations or personal investment advice or considered an offer to buy or sell specific securities. Data and statistics contained in this report are obtained from what we believe to be reliable sources; however, their accuracy, completeness or reliability cannot be guaranteed.

Our statements and opinions are subject to change without notice and should be considered only as part of a diversified portfolio. You may request a free copy of the firm’s Form ADV Part 2, which describes, among other items, risk factors, strategies, affiliations, services offered and fees charged.

Past performance is not an indication of future returns. Tax, legal and insurance information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice, or as advice on whether to buy or surrender any insurance products. Personalized tax advice and tax return preparation is available through a separate, written engagement agreement with Adviser Investments Tax Solutions. We do not provide legal advice, nor sell insurance products. Always consult a licensed attorney, tax professional, or licensed insurance professional regarding your specific legal or tax situation, or insurance needs.

Companies mentioned in this article are not necessarily held in client portfolios and our references to them should not be viewed as a recommendation to buy, sell or hold any of them.

© 2020 Adviser Investments, LLC. All Rights Reserved.