RMD Waivers & RMD Rollovers for 2020: What the New IRS Guidelines Mean for You
Earlier this year, the CARES Act eliminated Required Minimum Distributions from retirement accounts as a way to provide relief to investors by giving their investments some breathing room to recover from the market downturn. While no RMDs means less taxes (assuming you do not need RMDs to sustain your cash flows), retirees who already begun taking RMDs since the beginning of the year faced a bit of a predicament.
The CARES Act effectively allowed any distributions taken after Feb. 1 to be rolled back over, which is good news for individuals who do not need the RMDs. The unfortunate downside of this rule affected individuals who took distributions before Feb. 1 as they would not be eligible for a rollover. For example, individuals who take their entire RMD as a lump sum in January to get it out of the way or individuals who take monthly or quarterly RMDs would have to include the January distribution in their income, thus getting no relief from the RMD waiver for any January distribution.
Assuming the issue of a January distribution is not a concern, there is still the issue of rolling over the eligible distribution. Given that everyone is eligible for one 60-day rollover per year (IRA-to-IRA or Roth IRA-to-Roth IRA), individuals on a monthly or quarterly RMD system would not be able to rollover all of the distributions made as it would be in breach of the one rollover per year rule, thus limiting how much can be rolled over.
New IRS Guidelines
The two issues mentioned above have been addressed as of June 23rd in the IRS’s new notice. Any RMDs taken in 2020 will be eligible for a rollover up until August 31st. Individuals who have taken January distributions can take advantage of this if the RMDs are not needed.
Additionally, the IRS has suspended the one rollover per year rule meaning any distributions taken (monthly, quarterly, etc.) can either be rolled over in multiple amounts or can be bundled up and rolled over as a lump sum as long as it is done by August 31st.
What This Means for You
If your RMDs are not needed to sustain your cash flow needs, this new IRS notice could help you reduce your income for 2020. It is highly recommended that you consult with a financial advisor/tax advisor to understand what this new change means for you.
Weingarten Associates is an independent, fee-only Registered Investment Advisor in Lawrenceville, New Jersey serving Princeton, NJ as well as the Greater Mercer County/Bucks County region. We make a difference in the lives of our clients by providing them with exceptional financial planning, investment management, and tax advice.