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Eric Jungling, CFP®
With the passing of the CARES Act last month, which we discussed during our April 14th Summitry Financial Planning Webinar: COVID-19, CARES Act & You, a provision was included to suspend Required Minimum Distributions (“RMD”) from IRAs and Inherited IRAs for 2020. If you had to take an RMD last year or you will be 72 this year and would have had to take your first RMD this year, the requirement has been waived for 2020. This waiver relates to Traditional IRAs (Contributory, SEP, SIMPLE, Rollover), 401(k)s, 403(b)s 457(b)s, Inherited IRAs, and Inherited ROTH IRAs. The key word is required because you may still draw from your retirement accounts as needed to support your lifestyle. It is simply that you are not required to satisfy an IRS mandated minimum distribution for 2020.
What if I already took my RMD for 2020?
You have the option to put it back into the IRA or retirement plan from which you drew it so it is not taxable, but there are applicable guidelines. For example, to qualify, you would normally have to put the funds back in the IRA/retirement plan within 60 days of receiving them. However, based on an interpretation of IRS notice 2020-23, RMDs taken as far back as February 1st, may be eligible for a rollover back into the IRA by July 15th and so not taxable. Custodians such as Schwab and TD Ameritrade may require additional clarification from the IRS. Any RMDs taken after May 15th will follow the regular 60-day rule. Additionally, this is only possible if you’ve not done a similar “pay-back” to an IRA within the last 12 months. Where this gets tricky is if you’ve had a recurring monthly distribution set up to meet your RMD by 12/31/2020 (e.g. on/around the 1st of each month), you would be able to put the Feb 1st distribution back into your IRA, but not the March 1st monthly distribution because this would be viewed as the second in a 12 month period “pay back” to the IRA. If taxes were withheld as part of the distribution and paid to the IRS and California FTB, you will need to replace these withheld amounts out of pocket to avoid taxes on the total distributed amount. These withheld amounts would be returned to you as overpayments when filing your 2020 tax returns. Finally, this rollover provision does not apply to non-spouse beneficiaries for Inherited IRA accounts.
There is a lot to digest here, the situation is fluid and the IRS may very well provide additional clarification and/or modifications to the guidelines. Our commitment is to stay informed and in a position to provide guidance. If you, a friend and/or loved one would benefit from a conversation to help you determine what would be best for you, please give us a call.
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Jack Zhao, CFA