These are interesting and uncertain times that we are in. And although we do not know for certain how things will look or feel on the other side, we are hoping to provide some clarity and opportunities for you to make the best out of these extraordinary times. We have been talking a lot about the CARES Act because it is far-reaching legislation that covers many different provisions. Today we will break down the CARES Act provisions for 2020 required minimum distributions (RMDs). Here are three main parts:
- RMDs are Waived in 2020
- Returning Unwanted 2020 RMDs
- Extension of the 5-Year Rule
RMDs are Waived in 2020
This applies to Traditional IRAs, SEP IRAs, SIMPLE IRAs, as well as 401(k)s, 403(b)s and Governmental 457(b)s. In addition, RMDs are waived for original account holders and beneficiaries.
If 2019 happened to be the first year you were required to take an RMD and you were waiting to take two RMDs in 2020, thanks to the CARES Act, you can waive both your 2019 RMD (that needed to be distributed by April 1, 2020) as well as the 2020 RMD (that would have needed to be distributed by December 31, 2020).
Even though RMDs are waived in 2020, voluntary distributions are still allowed. Which includes qualified charitable distributions (QCDs) for IRA owners and beneficiaries who are age 70-1/2 or older.
Returning Unwanted 2020 RMDs
Even though we have just finished the first quarter of 2020, some people have already taken their RMDs. If your RMD was taken within the last 60 days, you can easily get the money back into your account if the money qualifies for a rollover based on the 60-day rollover rule. The 60-day rollover rule is extended to July 15, 2020 for people who take their RMD between February 1 and May 15, 2020.
A beneficiary of an inherited account is not eligible to make a rollover of distributions, and therefore, not eligible for 60-day rollover rule. However, if a beneficiary is impacted by COVID-19, they may also be able to pay back the RMD if they can show it was a coronavirus-related withdrawal.
Extension of the 5-Year Rule
In cases where a non-designated beneficiary (estates, charities, non-see-through trusts) inherited an account before the decedent started RMDs and must distribute the entire account within 5 years, the CARES Act has essentially extended that to 6 years by allowing 2020 to be ignored.
While uncertainty can cause confusion and worry, we are here to help you find some confidence and opportunities. If you would like to further discuss how the 2020 RMD waiver may be able to benefit your situation, please reach out to an advisor to further discuss. In the meantime, stay safe and take good care.
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