The new COVID-19 stimulus bill just signed by President Trump includes welcome tax relief for retirees: The required minimum distribution rules for Individual Retirement Accounts and 401(k)s are waived for 2020. That means that instead of taking money out this year, retirees can keep their investments growing!
RMDs are based on your age, and your retirement account balance as of the last day of the prior year. In our current economic downturn, retirees would be required to withdraw far less next year than the inflated rates of December 2019. The new required beginning date to take RMDs for an IRA owner is April 1 of the calendar year following the calendar year in which the individual attains age 72. Now, because of the stimulus, no one has to take RMDs for 2020. If you were 70 1/2 in 2019 and didn’t take your first year RMD, you would essentially get a two-year RMD holiday.
Retirees who depend on their RMDs for basic needs may still take their withdrawals, but for others who may want to keep their money invested will need to calculate whether that’s the best move taxwise. You might want to look at your tax bracket and get money out at low rates, or consider Roth conversions (which don’t require RMDs at all!) or IRA charitable rollovers.
Children, grandchildren and others who have inherited IRAs (pretax IRAs and Roth IRAs) must take annual withdrawals regardless of their own age. However, they too get an RMD holiday for 2020. Watch out: Taxpayers who miss an RMD can be hit with a 50% penalty tax, on top of regular tax, on what they should have taken.
If you don’t want your RMD this year, make sure to cancel any automatic distributions you’ve set up. Already taken out your 2020 RMD but wish you hadn’t? You might be able to roll over distributions you’ve already taken for 2020. If you’ve already received a distribution from your own IRA or one inherited from a spouse for 2020, you can roll it back into your IRA within 60 days of receipt.
If you are not directly affected by this information, be sure to pass it along to friends or loved ones that may benefit – and as always, encourage them to discuss their options with a financial advisor and a tax professional.
For further information, you can reach me at (980)859-3166.
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