How the CARES Act Impacts Required Minimum Distributions

Retirees are usually required to take withdrawals from their retirement accounts each year after age 72 (or 70 ½). However, the CARES Act allows these individuals to skip their 2020 required minimum distribution from a 401(k), IRA, 403(b), 457(b) and inherited IRA.  Here is what you need to know about delaying required withdrawals from a retirement account until 2021.

If you don’t need the money to live on, then it makes sense to skip the RMD for 2020.  There is no reason to withdraw an RMD, pay tax and then invest the net proceeds in another investment account.  Especially in a year when the stock market is in a down position, withdrawing money from a depressed retirement investment account locks in your investment losses.  Taking a retirement account distribution while the stock market is down can be particularly damaging to retirees who are no longer working and have no way to replenish their retirement savings.

Giving your investments time to recover some of their value before withdrawing your money can help your retirement savings last longer.  Another thing to remember is that your RMDs are based on the year-end value of the previous year.  This means that the RMD for 2020 is calculated based on the value of the account as of December 31, 2019, which is before the stock market decreased significantly.  This means that the RMD will be much higher as a percentage of the current (lower) value of the account during this downturn in the stock market.

If you have already taken your RMD in January 2020, you cannot repay the amount as you are past the 60 day rollover period.  However, if you took your RMD in February or later, IRS Notice 2020-23 allows an extension of that 60 day rollover period until July 15, 2020, but remember you are only allowed one rollover per year.

If you took an RMD in January 2020 or took multiple distributions in 2020, you may be able to treat that distribution as a coronavirus-related distribution (CRD).  A CRD allows you to withdraw a maximum of $100,000, which can be repaid back to the retirement account over the next three years.  If the distribution is repaid within those three years, the repayment will be reflected as a tax-free rollover, and CRD’s are not subject to the once per year rollover rule.  If you repay the CRD before the end of 2020, you would not need to pay taxes on the CRD distribution in 2020. 

The rules on rollovers are complex.  If you have questions on RMDs, CRDs and rollovers, please call your CironeFriedberg advisor to discuss your particular circumstances.

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