Changes to Required Minimum Distributions (RMDs)

Dear Clients & Friends,

As part of the CARES Act (Coronavirus Aid, Relief and Economic Security Act), the government created distinct provisions with regard to Required Minimum Distributions (RMDs) for 2020.  Specifically, for all taxpayers (including individuals that turned 70 ½ in 2019) who are required to receive an RMD from their defined contribution benefit plan in 2020, this requirement has been suspended. This relief applies to both the retirement account owner as well as beneficiaries.

Additionally, if you were directly affected by coronavirus, the following two 2020 RMD provisions apply to you as follows:

  1. Distributions prior to age 59 1/2 of up to $100K are not subject to the 10% additional tax penalty; and,
  2. Distributions of up to $100K this year can be reported as income over 3 years and/or repaid.

An individual affected by coronavirus as defined by the CARES Act is a person: who is diagnosed with coronavirus, whose spouse or dependent is diagnosed with coronavirus, or who experiences adverse financial consequences as a result of:

  • being quarantined;
  • laid off;
  • reduction in hours;
  • unable to work due to lack of childcare;
  • closing or reduced hours of a business owned.

If you have scheduled RMDs, you may want to cancel any remaining monthly, quarterly, or annual periodic distributions for 2020 at this time.

Many of you may have already taken an RMD prior to the coronavirus and CARES Act. If this is the case, you can return the distribution to your IRA or eligible plan up until August 31, 2020. The previous 60-day rollover period was extended to allow for more taxpayers to take advantage of this opportunity.

What you need to know for your 2020 RMD rollover relief

  • If you have returned the total gross amount to your account, the tax withholding cannot be reversed, but can be refunded when you file your 2020 tax return.
  • Any amounts returned that are less than the gross amount received will be taxed as a distribution.
  • Outside the 60-day window (or August 31st deadline), you will have to demonstrate that you have been personally impacted by the coronavirus (as described above) to qualify for RMD-related changes for the next 3 years.
  • A spouse who has remained a beneficiary on his/her deceased Spouse’s retirement account can rollover the RMD into their own account, as a spousal rollover.
  • Although RMDs are optional for 2020, voluntary distributions—such as the Qualified Charitable Distribution—are still allowed. This will allow you to use pre-tax assets to fulfill your charitable intent, so you may not want to roll them back over.

With RMD’s calculated on previous year values, these benefits come as a relief to many – especially those who were financially affected by this pandemic and experiencing a drop in the value of their retirement portfolio.  As always, we are here to answer any questions you may have about your particular situation.

Stay safe and healthy,

The CJBS Team