CARES Act: Impact on Your 2020 Required Minimum Distribution
On March 27, 2020, the president signed the largest economic relief bill in our country’s history, called the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). This $2.2 trillion aid package includes multiple provisions intended to ease the financial burden that both businesses and individuals face from the current economic hardship. One particular provision has suspended RMDs for 2020. Let’s take a look at how this may impact your retirement plans.
2020 RMD Suspension
Generally speaking, required minimum distributions (RMDs) from retirement plans including IRAs, 401(k)s, and 403(b)s have been suspended for 2020. This is good news for individuals who now won't have to take distributions or pay substantial taxes during this time of extreme market volatility amidst the coronavirus pandemic.
For IRAs, this applies to those who were scheduled to take an RMD in 2020 for the first time, those actively taking RMDs in 2020, and those who were scheduled to take RMDs in 2020 but have not started. For retirement plans, the same rules apply as for IRAs except in situations where the plan sponsor mandates RMDs. The plan sponsor may require an RMD for 2020 even though the CARES Act allows for an individual to elect an RMD waiver. It is important to understand specific plan rules regarding this waiver.
Does this suspension apply to inherited IRAs?
Yes. 2020 RMDs for IRA beneficiaries and qualified plan beneficiaries are waved as well. Also, if you’ve inherited an IRA, the five-year payout window is now extended by a year.
What if I need to take out money from my retirement plan?
You can of course still do so. Distributions from traditional IRA’s and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59 ½, may be subject to an additional 10% IRS tax penalty. (Note: There are additional provisions of the CARES Act that do impact taxation of certain Coronavirus Related Distributions (CRDs). Please consult your tax and legal adviser for more information.)
What if I’ve already taken my 2020 RMD?
If you took you RMD within the last 60 days, one option is to redeposit the money back into the IRA. There will be no tax consequences for doing so. It’s important to note that this 60-day rollover rule can be used only one time in the twelve-month time span. Also, this rollover rule does not apply to those that took their RMD from an inherited IRA.
Unfortunately, if you took your RMD more than 60 days ago, there’s nothing that can be done, unless the government instills a new policy to handle these situations.
If you have any questions regarding the CARES Impact on your personal financial situation and retirement plans, please contact your financial advisor.
This information is provided for educational purposed only. Neither Voya Financial Advisors, Inc. nor its financial professionals provide tax or legal advice.
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