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How the CARES Act Impacts your 2020 Required Minimum Distribution

by Kathryn Massoni | April 2020

The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) offers important relief for retirees; most notably, Required Minimum Distributions (RMDs) from retirement accounts are suspended for 2020.

Is my 2020 RMD included in the CARES Act relief?

The CARES Act waives the 2020 RMD from various retirement accounts including 401(k), 403(b), and governmental 457(b) plans as well as SEP IRAs, SIMPLE IRAs, traditional IRAs, and inherited IRAs. For inherited IRAs subjected to the five-year payout rule, the payout period will be extended by one year because 2020 is excluded.

How does waiving my RMD in 2020 help me?

The CARES Act allows you to forgo a 2020 distribution from your retirement plan, which is taxed as ordinary income. This also gives you the flexibility to leave the 2020 RMD, which would be calculated based on high 12/31/19 market values, in the portfolio to recover after a period of high market volatility.

What if I already took all or part of my 2020 RMD?

There is no ruling in the CARES Act that allows for 2020 distributions to be put back into your existing retirement plan. These distributions will be taxed as ordinary income. There are a couple of options to consider if you have already made a distribution:

  • If you have taken a distribution from your IRA or 401(k) in the last 60 days, you may consider a 60-day IRA rollover. RMDs typically do not qualify for rollovers, but it is anticipated this rule does not apply this year as there are no RMDs. A rollover would not be treated as taxable income. If you have taken your distribution in multiple installments, they cannot be rolled over together. Only one 60-day rollover is allowed in a 12-month period.

  • Distributed assets can be converted into a Roth IRA. While the distribution from the retirement plan will still be taxed as ordinary income, these assets can be invested to grow tax free.

How does this impact Qualified Charitable Distributions?

Qualified Charitable Distributions (QCDs) typically allow someone offset all or part of their RMD by making a charitable gift, therefore making the distribution nontaxable. A QCD can still be made in 2020, but it will not offset any future RMDs.

Should I take any action?

Please contact Kathryn Massoni (kathryn@cornerstonemgt.net) if you would like to forgo a distribution from your retirement plan or would like to conduct a 60-day IRA rollover (if applicable).

Thank you for your continued trust in Cornerstone Management and for allowing us to serve you.

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