The CARES Act, recently signed into law on March 27, 2020, makes big changes to retirement plan rules and adjusts several rules and regulations to make our financial lives a little easier. Among the many changes, the CARES Act waives Required Minimum Distributions (RMDs) for IRAs and defined contribution plans such as 401(k)s in 2020, and it could have a big impact on how you generate income this year if you’re subject to an RMD.
Here’s what you should know about RMDs in 2020:
WHY WERE RMDS WAIVED?
Waiving RMDs this year allows people to avoid selling investments in retirement accounts at reduced prices, which depletes savings faster. Waiving the RMD for 2020 buys time for the value of your investments to recover and also reduces the impact this year’s RMD would have otherwise had on your retirement savings.
The RMD waiver is particularly beneficial for people who can utilize other sources of retirement income, such as a bank cash reserve, cash value life insurance, nonqualified annuities, pensions and more. You could avoid selling any investments in your retirement account this year and instead draw income from other sources.
WHAT IF YOU ALREADY TOOK YOUR RMD IN 2020?
You can’t exactly take it back, but you could roll the distribution into an IRA or other eligible rollover account. Ordinarily RMDs cannot be rolled over. However, since RMDs are waived in 2020, the distribution that was taken, wasn’t an RMD, it was a normal distribution.
A normal distribution can be rolled into an IRA within a 60-day window. The IRS recently extended the deadline for certain distributions to be rolled over until July 15, 2020, provided that the distribution is otherwise eligible to be rolled over and the 60-day deadline would have occurred after March 31, 2020 and before July 15, 2020.
However, rollovers are subject to the so-called “once-per-12-month” rule, and it still applies. It states that a person can only make one 60-day rollover from an IRA to another in any 12-month period, regardless of the number of IRAs owned. There are exceptions to this rule, such as a trustee-to-trustee transfer. Instead of diving into the one-per-12-month rule’s many nuances, at this point it might be a good idea to work with a tax professional or schedule a call with me to discuss your individual situation, especially because the IRS may issue new guidance as time goes on.
Well, the viral fog is starting to thin. US coronavirus case growth appears to be slowing, but at a tragically high level. Governments and businesses are thinking about the next stage.
We know everything has changed, but we don’t yet know how. This all happened within weeks instead of unfolding over years like other major crises. We haven’t had time to process it all, much less prepare for it.
That’s why for those in retirement or close to it our investment goals must be proactive and simple:
1) preserving life savings
2) achieving a rate of return that will keep ahead of inflation
3) getting the highest rates of return with the least amount of risk.
Anyway, like most of you, I am staying at home. But I seem to be busier than ever learning new technology skills as I contemplate what may be a seismic shift in how we all communicate!
I’ll leave you with this: when you have five minutes for a laugh, go to youtube.com and search: One Day More Corona Parody (Mathew Woolever) or just go here: https://youtu.be/_DwlnT3WxrI
P.S. You can grab a free copy of my new Amazon best-selling book, Simple Retirement (you just pay the shipping, the book’s on me) here: http://simpleretirementbook.com