Required Minimum Distributions: An Overview of the Ins and Outs
It’s long been complicated for retirees to figure out when and how to take Required Minimum Distributions (RMDs) from their IRAs and similar retirement accounts. Recently, it’s gotten even more confusing. First there was the 2019 SECURE Act, extending the required age from 70 1/2 to 72 (effective in 2020 for those turning 70 1/2 after year-end 2019). Then came the CARES Act, which waived the 2020 RMD altogether for all IRAs and 401(k) accounts.
Here’s an overview of where we stand today.
There is no RMD in 2020. This includes your own and inherited IRAs. It also includes anyone turning 70 1/2 in 2019 who had planned to take their first RMD in the first quarter of 2020. Retirees can thus avoid 2020 taxable income from distributions they’d rather not take.
What if you already took your 2020 RMD? You might be able to put it back and avoid the taxes. Basically, since there is no such thing as an RMD this year, your withdrawal is simply a traditional distribution:
· You can always roll over a distribution from your IRA back into an IRA to avoid tax. Usually, you have 60 days for that. But under the CARES Act, you have until July 15 for any distribution made after January 31, 2020.
· You can do the same with a 401(k) plan RMD, as long as the plan allows it.
· Each person can only do one rollover every 12 months. So, if you took RMDs from multiple IRAs, be sure to roll over the sum once, into one IRA.
· You CANNOT roll over a distribution from an inherited IRA.
What about Qualified Charitable Distributions (QCDs)? Anyone 70 1/2 or older can still donate up to $100,000 annually to charity from their IRA. However, since QCDs reduce RMDs, and there are no RMDs in 2020, it may make sense to skip this year’s QCD and donate directly. Then again, QCDs are still a great way to reduce taxable balances in your IRAs while fulfilling your charitable intent.
Sorry if this makes your head spin. Best to reach out to your financial advisor or CPA to confirm your understanding of how the SECURE and CARES acts may affect you in 2020.
John A. Frisch, CPA/PFS, CFP®, AIF®, PPC™ founded Alliant Wealth Advisors in 1995 and has over 30 years of experience as a financial professional. In his free time, he’s an avid long-distance runner, a sport that requires discipline, patience and vision. John applies these same skills to his professional pursuits: He helps families and retirement plan sponsors adopt a patient, disciplined approach to overcoming financial challenges and reaching their distant goals along a clear path. Learn more at www.alliantwealth.com.