CARES Act RMD Suspension
From Lee Sherbakoff,
The Nalls Sherbakoff Group, LLC.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act – better known as the CARES Act – was signed into law by President Trump. The CARES Act was third in a series of COVID-19-related relief legislation beginning with the Coronavirus Preparedness and Response Supplemental Appropriations Act of 2020 which was followed shortly thereafter by the Families First Coronavirus Response Act of 2020. Next, with the passage of the CARES Act, Americans were provided with a more-than-$2 trillion emergency fiscal relief package that included benefits for many individuals, small business owners, healthcare providers, and government entities.
The CARES Act will most likely be remembered for its Recovery Rebate, ‘stimulus checks’, and the Paycheck Protection Program. However, for retirees and/or beneficiaries of retirement accounts, the provision that may have the biggest financial impact is the CARES Act’s suspension of Required Minimum Distributions (RMDs) during 2020. A RMD is the amount of money that must be withdrawn from a traditional IRA, SEP, or SIMPLE individual retirement account (IRA) by owners and qualified retirement plan participants of retirement age. The annual RMD must be withdrawn and taxes paid on the amount withdrawn (in most situations) regardless whether you need or want the distribution.
The suspension of RMDs applies to all IRA accounts (including SEP and SIMPLE IRAs) and defined contribution plan accounts, such as those under 403(a), 403(b), 401(a), and 401(k) plans, as well as the Federal Thrift Savings Plan (TSP). RMDs from 457(b) plans are also suspended, but only from plans offered by government employers. In addition, beneficiaries, those who have inherited a retirement account are also eligible to suspend their 2020 RMDs.
On the other hand, accounts that are not eligible for suspended RMDs include defined benefit plans, non-governmental 457(b) plans, annuitized annuities held in an otherwise eligible plan, and 72(t) distributions.
If you have already taken your RMD for 2020 but would rather have suspended the distribution, there are a few ways to address the unwanted now-no-longer-necessary RMDs. Individuals can return the funds to the original account or rollover the funds to another retirement account either through the 60-day-rollover window, or the extended rollover deadline offered through IRS Notice 2020-23 (that deadline being no later than July 15, 2020), or for individuals directly affected by the COVID-19 virus by using the Coronavirus-Related Distribution Provision outlined in Section 2202(a) of the CARES Act.
For non-spouse beneficiaries of inherited retirement accounts, there is, unfortunately, no option to fix an unwanted RMD, as they are not permitted to do rollovers in any case. Spousal beneficiaries, on the other hand, do at least have the option to make spousal rollovers to move distributions to their own retirement accounts but such rollovers are subject to the once-per-year rollover rule.
Ultimately, the key point is retirement account owners can use relief offered through the CARES Act by suspending 2020 RMDs that aren’t immediately needed, and remember you can always take out any amount you do need regardless of what the RMD would have been. For retirees who may already have taken their RMDs for 2020 (or for certain individuals who took 2019 RMDs timely in 2020), there are strategies for them to return these unwanted distributions using the 60-day-rollover rule, the relief provided by IRS Notice 2020-23 which pushes back the deadline to rollover distributions taken on or after February 1, 2020, to July 15, 2020, or a Coronavirus-Related Distribution for individuals directly affected by the COVID-19 virus.
These rules are firm and, yet, may change as Congress reacts to the unfolding crises. In addition, your custodian that houses your IRA may also require certain procedures and deadlines to be met.
Since there are no RMDs for 2020 the amount that has to come out of your IRA is now $0.00. Keep in mind there will be no RMD distribution planned for later this year. If you need or want a regular distribution from your IRA please contact your adviser. We stand by ready to help.
The Nalls Sherbakoff Group, LLC
DISCLOSURES: The information provided in this letter is for general informational purposes only and should not be considered an individualized recommendation of any particular security, strategy or investment product, and should not be construed as investment, legal, or tax advice. The Nalls Sherbakoff Group, LLC makes no warranties with regard to the information or results obtained by third parties and its use and disclaim any liability arising out of, or reliance on the information. These indexes reflect investments for a limited period of time and do not reflect performance in different economic or market cycles and are not intended to reflect the actual outcomes of any client of The Nalls Sherbakoff Group, LLC. Past performance does not guarantee future results.