Moving forward when RMDs are suspended

Bill Cass, CFP®, CPWA®

Bill Cass, CFP®, CPWA®, 05/13/20


Among its many provisions, the CARES Act (Coronavirus Aid, Relief, and Economic Security) modified the rules involving retirement accounts to help both retirement savers and retirees during these challenging times.

The act suspended the requirement for retirees to take required minimum distributions (RMDs) for calendar year 2020. The waiver applies to owners of IRAs and retirement accounts, as well as beneficiaries who have inherited an account. Considering the fall in investment asset values, retired individuals have the flexibility to avoid RMDs for 2020.

Investors may have questions about how the suspension of RMDs may impact their financial plans.

What happens if I already took an RMD in 2020?

  • Account owners who have already taken a distribution may be able to rollover the amount of the RMD if it occurred within the last 60 days
  • Tax-related deadlines are also delayed until July 15, 2020. (IRS Notice 20-23) This impacts the income tax filing deadline as well as other deadlines such as the 60-day rollover rule
  • According to the IRS notice, as long as the RMD was taken by February 1 (and through May 15), the 60-day rollover rule does not apply as long as that RMD is rolled back into the account by July 15
  • The rule prohibiting more than one 60-day rollover in any 12-month period still applies. For example, if an IRA owner took an RMD via multiple distributions he/she could only roll one of those distributions back into the account
  • If the RMD was taken in January, there is no option currently to roll that amount back into the account to avoid an RMD
What about inherited accounts?

If a beneficiary of an inherited IRA or retirement account already took an RMD for 2020, there is no option to roll those funds back into the account

Are additional IRS changes anticipated?

  • There could be additional guidance issued that provides further relief for those who took RMDs in January and wish to roll the funds back into the account. There may also be additional relief for those with inherited accounts who wish to roll the funds back into the account
  • In fact, on May 12, House Democrats unveiled a massive spending bill referred to as the HEROES Act
  • The bill waives the 60-day rollover provision for account owners so all prior distributions in 2020 could be rolled back into the account in order to avoid an RMD for this year
  • Additionally, it extends the suspension of RMDs for 2019, allowing account owners to rollback minimum distributions into their accounts
  • Distributions rolled back into accounts to avoid RMDs for either 2019 or 2020 must occur by November 30, 2020
Planning considerations
  • Avoiding an RMD can help retirees preserve assets in their accounts, which may be especially helpful at a time when account values have declined. Some investors may want to consider converting the amount of their RMD to a Roth IRA instead. This can help create a source of tax-free income in retirement. It may be helpful to investors at a time when growing federal budget deficits will pressure lawmakers to increase taxes in the future
  • Leaving tax-free Roth assets to the next generation may help mitigate the impact of the SECURE Act. Late in December, Congress passed the SECURE Act, which introduced a 10-year rule on distributing inherited IRA and retirement accounts. Roth accounts are still subject to the 10-year rule (unless an exception applies), but the distributions are tax free.
To learn more, read “Understanding the SECURE Act and its impact on planning.” For more information on the CARES Act please read, “Understanding the CARES Act and its implications for individuals and businesses.”

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