Required Minimum Distributions RMDs

The CARES Act is suspending 2020 Required Minimum Distributions (RMDs), giving control to individual investors of their funds this year. The anticipation of the change will cause a reduction in selling investments (which normally generates the cash needed for the RMD) during this national emergency.

Under the recently passed CARES act, the IRS does not require RMDs in 2020. However, it is unclear if the legislation applies to RMDs from inherited IRAs & 401k plans. Since the act is intended to provide relief to taxpayers during this pandemic, financial professionals maintain the IRS will interpret the bill allowing RMDs from these inherited plans.

Other inherited accounts are also in the bill for estates, charity, or a certain type of trust at death. Non-designated beneficiaries who inherit a retirement account from a decedent who died before their required beginning date will be under a six-year rule if one of the years is 2020. Usually, the taxpayer must take a distribution from the account within five years of the death of the owner.

If you have already withdrawn your RMD for 2020

Have you made an RMD withdrawal in the last 60 days? If this applies to you, you have the option to rollover (give back) these 2020 distributions into your IRA. No provision allows someone to put back an RMD distribution taken outside of 60 days, and therefore they, as is normal, will be included in your taxable income. Fortunate taxpayers that won’t need their 2020 RMDs can contact their advisors and ask them to suspend automatic distributions for 2020.

Here are items to consider in your decision as to whether you will or will not take RMDs in 2020:

1. Can you get by without all or some portion of your RMD this year?
2. If yes, did you take all or any portion of your RMD yet?
3. If yes, would you prefer to stop any further RMDs? Presuming you are currently receiving periodic RMD payments throughout the year.
4. If yes to #2, determine when and how much RMDs you want to receive in 2020.

RMD distributions taking place in the past 60 days are eligible for rollover.  The result would be that these rolled over RMDs would be non-taxable.

Fortunately, there is no required “catch up,” in future years, of the RMDs not taken in 2020. This provision will hopefully aid many retired Americans with fixed incomes to further secure the assets in their retirement accounts for the next year.

Consider leaning on your CPA for cash flow guidance, tax deadlines, and help in completing SBA loan and the new CWCA loan applications, and the CARES Act. Our CPAs are available, and we have the knowledge, skill, and information that you need right now to address your financial needs in a timely fashion properly.

By Pete Mullen

Pete Mullen is a CPA and Partner Emeritus at Wilke & Associates. Pete has invested his entire career in public accounting. His primary area of services includes tax and consulting and business valuation services for closely held commercial businesses and professional practices in connection with buy-sell agreements, sales of companies, gifting, and divorce property.