July 15, 2020 Update: Should You Forgo Taking RMDs in 2020?
The CARES Act (Coronavirus Aid, Relief, and Economic Security), signed into law in March of this year, includes provisions designed to provide relief to U.S. taxpayers. Among them is one that allows retirees to forgo taking Required Minimum Distributions, or RMDs, from IRAs or other retirement plans, such as 401(k), 403(b), and 457 plans.
The decision to forgo or take distributions in 2020 is a personal one, and can be based on various factors. You have to carefully evaluate your needs and resources, along with investment and income tax considerations. It’s best to consult both your tax and investment advisor so that you can make informed and intelligent decisions.
Here are a few points to keep in mind when you speak with your advisors:
- While the IRS waived RMDs in 2020, you may still take ordinary distributions of any amount. Or, you may decide not to take any distributions during the year.
- If you decide to make any changes to your normally scheduled RMD, you should contact your IRA custodian or financial advisor.
- The waiver applies to inherited IRAs as well. So, if you have one, talk with your advisors.
- If you already took your RMD in 2020, or any part of it, you can restore the full amount, or a partial amount, to your account by August 31, 2020.
- If you have been affected by the coronavirus, you can restore the amount over the next three years and not be taxed on the distributions. Again, speak with your advisors because designating the distributions as a coronavirus-related distribution has specific guidelines.
- The waiver doesn’t apply to defined benefit plans, usually called pension plans.
Not only are the provisions of the CARES Act wide-reaching and complex, they are also subject to constantly changing interpretation by the IRS and Treasury Department. So, nothing in this article can be considered personalized advice. For that, you will want to talk with your tax and investment professionals.
We are available to help you carefully evaluate and consider your options. Talk with us. We’re here to help.
- Can You Forgo Taking RMDs in 2020? Schwab Center for Financial Research, June 30, 2020.
- IRS Notice 2020-51, Guidance on Waiver of 2020 Required Minimum Distributions, June 23, 2020.