Please feel free to forward to anyone who may find this helpful. In particular, people over age 70 1/2 and or family members of these same people who assist them in financial matters.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act signed into law last week offers relief to those who are required to withdraw a minimum amount from IRA and other retirement accounts. Effective with this bill, all 2020 Required Minimum Distributions (RMDs) are suspended, including inherited (beneficiary) IRAs. Consideration should be given to whether to take advantage of this suspension. For example, if the effects of the pandemic drop you into a lower tax bracket, it might make sense to take the RMD (and perhaps a bit more than the minimum) out of the account in 2020.
That much is clear. Here is where it gets tricky:
If you have already taken your 2020 RMD, as it looks right now, you will have to include this withdrawal in your 2020 gross income and pay taxes on it. That said, in the year following the 2008 financial crisis, this same initial ruling prohibiting redeposits was later reversed. Also, not all tax experts agree on this redeposit rule. For right now, the best practice is to consult your tax advisor for their opinion.
If you have taken RMD for 2020, you still have some options that might work for you:
You have up to 60 days to return a distribution to an IRA or deposit it in another qualified retirement account without owing taxes on it.
You also might decide to convert the amount into a Roth IRA. Since you are paying the taxes anyway, but if you don’t need the money for current year expenses, you can use a Roth to generate tax-free growth.
The CARES Act offers other temporary changes to retirement account deposits and withdrawals. We intend to provide clarity on some of these changes in future updates.
Please call us with any questions about your retirement accounts, taxable investments, or other financial matters. Right now, we are walking through history. There is no need to walk alone.
This information is not intended to ne a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.
Traditional IRA account owners should consider the tax ramifications, age and income restrictions in regards to executing a conversion from a traditional IRA to Roth IRA. The converted amount is generally subject to income taxation.