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Impact of the CARES Act on RMDs

April 03, 2020
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I’m sure by now that most of you aware of the Coronavirus Aid, Relief, and Economic Security (CARES) Act that was signed into law last Friday. This emergency aid includes provisions such as support for small businesses, expanded unemployment, healthcare support, state and local government support, and individual checks for those that qualify.

There are some key provisions for retirement accounts as well that can impact your individual planning for 2020. First, the CARES Act eliminates the 10% early withdrawal penalty for coronavirus related distributions from retirement accounts. We would encourage you not to take any early withdrawals from a retirement account, but the option is there in case of coronavirus related emergency. Second, Required Minimum Distributions (RMDs), including for Beneficiary IRAs, have been waived for 2020.

Wait….RMDs have been waived?

That’s correct, waived. This means that you can simply choose to not take the withdrawal this year and you will just continue taking RMDs again next year. If 2020 was supposed to be the year you begin taking RMDs then you have the option to push them off one more year with no penalty. RMDs are calculated using your end-of-year balance from the previous year, which could now be a disproportional amount based on the current market conditions. By leaving those funds in your account it allows them time to recover rather than removing funds from your retirement account and paying taxes on that amount as well.

What if I still need those funds?

If you have a non-retirement account, we can distribute from that account to minimize the tax impact. If you do not have a non-retirement account, then we can continue with your Required Minimum Distributions as we have in the past.

What if I already took my RMDs but I don’t need them?

If the RMD came from a Beneficiary IRA, then there are no options to return the distribution. If the RMD came from your IRA or 401(k), then we have the option of completing a rollover and returning the funds to the account if the distribution occurred within the last 60 days and you have not done another rollover in the last year.

Please take some time to review your cash flow needs and determine whether waiving your RMD for 2020 is possible. This could reduce your taxation, allow for better recovery of your retirement accounts, and mitigate some of the economic effects of dealing with COVID-19. We are here to answer all of your questions and work with your CPAs as well to navigate these changes, so please reach out to discuss your options! We hope you are staying healthy and well.

For more information on tax filing and the CARES Act, go to www.irs.gov/coronavirus

Please note, changes in tax laws or regulations may occur at any time and could substantially impact your situation.  While familiar with the tax provisions of the issues presented herein, Raymond James financial advisors are not qualified to render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professional.