As part of the recently enacted Coronavirus Aid, Relief, and Economic Security Act (CARES Act), required minimum distributions (RMDs) from IRA, 401(k), 403(b) and other qualified retirement plans are waived for 2020. If you don’t need the cash this year, this law will allow you to avoid withdrawing funds when the market is down substantially.
If you’ve already taken your 2020 RMD, the law allows you to roll it over into an IRA within 60 days of the RMD withdrawal. One tax note on this, when you took your RMD, your brokerage firm withheld the associated state and Federal taxes. If you roll over the RMD, you’ll be “repaying” the gross amount and the taxes can’t be reclaimed. For example, suppose your RMD withdrawal was $70,000 and your combined state and Federal taxes were $14,000. When you withdrew the $70,000, you actually received $56,000 and $14,000 was submitted to the government. When you roll over the RMD, you’ll want to pay the full $70,000. You can reduce your estimated tax payments by the $14,000 that was withheld or you can get the money back when you pay your 2020 taxes if a refund is due.
Some people are not subject to the 60-day repayment rule. They include those who contracted coronavirus, have a spouse or dependent who contracted the virus or have experienced adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury.
There are a few details associated with this RMD waiver that may apply to you such as the ability to move your RMD into a Roth IRA account. If you’d like to discuss how the CARES Act affects you or review any other financial questions that you may have, please visit our website or give us a call at 970.419.8212 so that we can discuss your situation in a no-charge, no-obligation initial meeting.
This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products. Please consult your tax or investment advisor for specific advice.