The Suspension of Required Minimum Distributions for 2020

Learn how the suspension of required minimum distributions for 2020 has created flexibility and opportunity for retirees.

COVID-19 is a health crisis, and yet it has impacted so much more than our physical wellbeing.  The requirements of stay-at-home orders have also affected many financially.  In an effort to provide relief, legislation has been enacted as people and governments around the globe struggle to contend with and contain COVID-19.  At the end of March, the United States government put together a $2.2 trillion package to aid individuals and businesses.  This economic relief package is probably best known for the distribution of stimulus checks, the Paycheck Protection Program, and the expansion of unemployment benefits.  However, a lesser known inclusion created some flexibility and planning opportunities for retirees.  This inclusion was the suspension of required minimum distributions (RMDs) for 2020.

First, a quick refresher: once you reach age 72, the government requires that you start to take taxable distributions from your IRA or company plan.  Now, a lot of people need to take income from their retirement accounts much earlier than age 72, but there are those who are fortunate enough not to need the income.  For those persons, they can skip their RMD in 2020.  This will help to minimize their taxable income and allow their portfolios to recover from the market’s recent volatility.

Learn more about retirement planning during volatile market conditions.

If you already took your RMD for 2020, you may still be able to put it back.  Using the 60-day rollover rule, you can redeposit any funds taken from an IRA or company plan within 60 days of receipt.  Additionally, the government provided an extension to this rule, allowing those who withdrew funds on or after February 1st to get those funds back into their accounts by July 15th.  Unfortunately, if you took your RMD in January and let the 60-day window lapse, there is no exception.  If you took an RMD from a non-spousal inherited IRA, you are also out of luck since the 60-day rollover rule is unavailable for non-spousal inherited IRAs. There is more to consider than just whether you need the income.  You should also consider your tax bracket.  With taxes seemingly due to rise, you may want to distribute a portion of your IRA or company plan funds now.  If you do not need the income, those funds can be converted to a Roth IRA for tax free growth.

As a financial planner, I work with my clients to make sure they stay informed and benefit from changes in legislation.  As lawmakers continue to create new legislation around COVID-19, be sure to check in with your financial planner.  We can help you navigate the uncertainty of these times.

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