Retirement savers were given the opportunity to forgo Required Minimum Distributions (RMD) for 2020 as part of the CARES Act, which was passed into law in March of 2020 in response to the COVID-19 pandemic.  This RMD relief applies to all types of IRAs (except Roth IRAs which do not require RMDs in the first place), 401(k), 403(b) and even includes inherited accounts.  This benefit allows account holders to reduce their taxable income for calendar year 2020 and to preserve the tax deferred growth offered by these accounts for a bit longer. Of course, those that need the funds for living expenses are permitted to still take distributions as normal.

As a reminder, the tax code requires that retirement account owners begin taking distributions out of their pre-tax retirement accounts when they reach a certain age.  Through calendar year 2019 the triggering age was 70.5.  For all those who were not 70.5 years old by the end of 2019 the new triggering age is 72 thanks to the SECURE Act of 2019.  If your retirement account is a 401(k) and you are still working at the sponsoring company then RMDs are deferred until the year of your retirement for non-owners that would otherwise be required to take the RMD.  Those that have inherited a retirement account prior to 2020 are also generally required to take RMDs.

But what about those savers that had already taken their 2020 RMD by the time the CARES Act was passed and do not need the money?  The good news is that the IRS recently provided relief for those situations.  Anyone that took an RMD in 2020 now has until August 31, 2020 to re-deposit the full amount into their retirement account.  These re-deposits will be considered a rollover but will not be subject to the typical 60-day requirement and will not be subject to the typical limit of one such indirect rollover allowed per year.  Therefore, you can do this for as many RMDs as you took in 2020.  This option will also be open to the owners of inherited accounts, which typically are prohibited from this type of transaction. In short, anyone is now eligible to reverse their RMDs taken in 2020 for the extended period.

This is great news for those that would have preferred not to take an RMD but already had.  Others may still want to take their RMD for 2020 to cover expenses or to take advantage of a potentially lower tax bracket if their incomes have been impacted by the COVID-19 crisis.  Every situation is different so you should consult your CCP advisor and your tax advisor to help determine the best course of action for you.

Please do not hesitate to reach out with any specific questions you might have.