By: Lonny S. Cades

Individuals are presently required to take yearly taxable distributions that increase one’s total income tax liability and in some cases may push an individual into a higher income tax bracket, known as Required Minimum Distributions (RMD), from their IRAs, Simple IRAs, SEP IRAs, or other qualified retirement plans, such as 401(k)s, upon reaching age 72 (the age was 70½ before 2020). Individuals are also required to take yearly withdrawals from IRAs you inherited, known as Inherited IRAs. The yearly withdrawals are the percentage based on your life expectancy, as determined yearly by the IRS, and in some cases a uniform table, of the total value of your retirement account(s) at the close of business on December 31 of the previous year.

However, the legislation just passed by Congress and signed into law on March 27, 2020, known as the CARES Act, gives the option of waiving the RMD requirement for 2020 only without penalty. Without the waiver, such penalties are substantial. The theory behind this is that you would be withdrawing a higher percentage than normal of the value of your IRA due to the possible significant decrease in the value from December 31, 2019 to 2020. You still have the option to make the RMD for 2020 or to keep the RMD for 2020 already made and to pay income taxes on it. In addition, the same waiver applies to those subject to the RMD rules for inherited/beneficiary retirement accounts.

If you already took your RMD for 2020, you can return the distribution to your IRA or deposit it in another qualified retirement plan within 60 days of the date of the distribution to you. If you re-deposit the RMD distribution within the 60 day period, there will be no income taxes due on it.

If you have any questions regarding RMDs, this waiver, or any other particulars specific to you related to retirement plans and their taxation, please feel free to reach out to our Wealth Preservation Group to help you understand how this affects you and yours.