As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, investors stand to potentially benefit from the waiver of required minimum distributions (RMDs) for calendar year 2020.
RMDs are based on your age and your retirement account balance at the start of the year (12/31 statement for the prior year). Typical retirement accounts subject to RMDs include traditional and inherited IRAs, SEP and SIMPLE IRAs, and other defined contribution plans such as 401(k)s and 403(b)s.
Due to the global health crisis, Congress recognized that account balances were generally higher at the end of the year relative to where investment values stand today. As a result, part of the CARES Act allows account holders to forego their RMD for 2020, and therefore avoid paying the related income tax.
This is welcome tax relief for investors who have other sources of cash flow and don’t need to take money out of IRAs and pay tax. Additionally, this allows account holders to keep their investments growing within a tax-advantaged vehicle and wait for the economic recovery and rebound in stock prices.
If you have already taken a distribution from your IRA in 2020, you may be able to roll it back. Unfortunately, the rule provides only 60 days (from the date of the distribution) for the funds to be redeposited, effectively “undoing” the distribution.
For clients who have taken distributions in 2020 and would like to put funds back into your IRA(s) please contact us immediately so we can confirm the eligibility dates. If you have not yet taken 2020 distributions, and if you have the ability to access other sources of cash flow, we advise you contact your CPA to discuss the optimal amount (if any) to distribute from your deferred accounts in order to minimize taxes. We can then help you execute the plan.