What the CARES Act means for Required Minimum Distributions (RMD’s)

School of Saving and Investing

Red white and blue buttons with stars, stripes, and “CARES Act”. The CARES Act makes important changes to Required Minimum Distributions (RMD’s) for Retirement Accounts.

Update August 13, 2020:

As mentioned later in this article, Required Minimum Distributions [RMDs] were suspended for 2020 upon signing of the CARES Act into law on March 27, 2020. This created questions for many who had already taken some RMDs by the time the bill was signed.

To help answer those questions and resolve the situation, the IRS released new guidance (click to download the official notice) allowing waived 2020 RMDs, whether taken before or after the signing of the CARES Act, to be rolled over without penalty. In addition, the 60-day rollover period was extended until August 31, 2020, so there is still time for you to act.

If you have already taken RMDs in 2020 prior to the signing of the CARES Act, or if you have further questions regarding the complex topic of RMDs, please reach out to a member of the Meld Financial team. Our team of financial and legal professionals is ready to answer your questions and help you develop your FINANCIAL FINGERPRINT™.

In response to the COVID-19 outbreak worldwide, Congress passed, and the President signed into law, the Coronavirus Aid, Relief, and Economic Security or CARES Act. While most of the media buzz has been centered around the $2.2 trillion fiscal stimulus, there were also some amendments to retirement account rules, notably those concerning required minimum distributions (RMDs).

RMD’s can have a major impact on your retirement plans, so you should review these changes with your CERTIFIED FINANCIAL PLANNER™ as soon as possible. In the meantime, we’ve summarized these changes for you.

IRS suspends RMD’s for 2020

In section 2203 of the CARES Act, language is included that suspends all RMDs that are due in 2020. This applies to most IRAs, excluding Roths, 401(k)s, and most other retirement plans. Those who turned 70 ½ in 2019, and therefore must take out their 2019 RMD by April 1st, 2020 will also be exempt from both the 2019 RMD as well as the 2020 RMD.

This rule was put in place to protect retirement savers from needing to take distributions from their retirement accounts during this period of increased market volatility and likely depressed asset values in their portfolios. Voluntary distributions can still be made as they normally would. Though qualified charitable distributions made during 2020 will not count towards RMDs, they still allow charitable individuals to donate pre-tax money.

Other CARES Act Retirement Account Provisions

Those experiencing hardships from the coronavirus outbreak and younger than 59 ½ can take up to a $100,000 loan from their retirement account. This is called a Coronavirus-related distribution, and this loan is not subject to the early withdrawal penalty or applicable taxes. However, the loan must be repaid within three years. It is typically not advisable to draw on retirement savings, especially considering the current market conditions.

Beneficiaries and account holders alike are not subject to RMDs in 2020. Inherited IRAs subject to the 5-year rule will receive an extension of one year as 2020 will be excluded. Note that the new SECURE Act’s 10-year rule will not be affected by the CARES act because the earliest the countdown can start is 2021.

Returning Unnecessary Distributions

Those who have taken at least a part of their RMDs in 2020 and would now like return them have a couple options. The first, and easiest option, is to rollover a distribution that has been made within the last 60 days.

Rollover the distribution into another retirement account.

From the date of distribution, tax advantaged retirement account owners have 60 days to deposit the distribution into another qualifying account. Otherwise the distribution will be subject to taxes or the early withdrawal penalty, if applicable. However, only one IRA rollover can be made every 12 months.

Classify the distribution as a Coronavirus-related distribution.

If the 60-day rollover rule is not an option, one alternative would be to classify the distribution as a Coronavirus-related distribution. If an individual can prove that the coronavirus has impacted his/her financial condition, then the distribution can be repaid anytime within three years of distribution with no federal income tax consequences.

Beneficiaries of inherited accounts are not eligible for distribution rollover. This includes distributions that were received within the last 60 days.

While this is only a fraction of the legislation, these are the important changes to retirees and their RMD’s. These changes will give many the flexibility to avoid distributions during the current bear market and allow their retirement portfolios a year to recover.

Further Questions about Your Retirement and How It’s Impacted by the CARES Act

If you have more questions about your retirement or how it will be impacted by the CARES Act, don’t hesitate to reach out to our team here at Meld Financial. At Meld, we develop your Financial Fingerprint™ which guides us in developing an effective retirement and savings plan for you and your family. This proprietary system streamlines our approach to comprehensive Wealth Management, and it allows us to keep a finger on the pulse of your financial situation.

If you’d prefer to do your own research, there is no better place to start than Meld University. At Meld U, we provide valuable, no-cost information via articles, webinars and in-person classes to our clients and the public. We look forward to meeting you at our next event.Note: In-person classes have been suspended until social distancing recommendations are removed in our area. In the meantime, don’t miss our valuable webinars!

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