Tucked into the gigantic “Coronavirus Aid, Relief, and Economic Security” (“CARES”) Act were two key changes you should know about, regarding required minimum distributions (RMDs). Both were designed to give people more control over their money and to help manage selling investments during an emergency.1
One provision allows retirees to forego taking RMDs from Individual Retirement Accounts (IRA) or 401(k)-style plans this year.
The other provision allows people who have inherited 401(k)s, IRAs or Roth IRAs to suspend distributions in 2020 (while RMDs don’t apply to people with Roth IRAs, they do apply to investors who inherit Roth accounts).
Let’s take a look at a couple of examples.
- Let’s say an account holder has been taking RMDs from an inherited account for a number of years using the life-expectancy method set by the Internal Revenue Service. The account holder can forgo a distribution in 2020, and resume distributions in 2021.
- Suppose an account owner passed away on January 1, 2020, and left the IRA to an adult child. The new 10-year rule would start in 2021. The beneficiary would have until the end of the 10th year to withdraw the entire account.2
Important Note: If you have already taken a distribution from an IRA or 401(k)-style plan this year, you may be able to roll the funds back into the plan. But if you have already taken a distribution from an inherited IRA, you may not be allowed to put that money back. Keep in mind, the CARES Act is a 335-page bill, and some of the provisions are open to interpretation. Please contact your tax or legal professional to understand how it might impact your situation.
Big picture, these rule changes are meant to help Americans who may be struggling with the economic, emotional, or physical toll of COVID-19. In a tough time, these provisions of the CARES Act gives account owners some flexibility that may provide some relief. As always, please reach out if you have questions, I am happy to connect.
Sincerely,
Taylor McClish
This material was prepared by MarketingPro, Inc. for use by Taylor McClish.
Under the SECURE Act, your required minimum distribution (RMD)
must be distributed by the end of the 10th calendar year following the year of
the Individual Retirement Account (IRA) owner's death. Penalties may occur for
missed RMDs. Any RMDs due for the original owner must be taken by their
deadlines to avoid penalties. A surviving spouse of the IRA owner, disabled or
chronically ill individuals, individuals who are not more than 10 years younger
than the IRA owner, and children of the IRA owner who have not reached the age
of majority may have other minimum distribution requirements.
Securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor. CBSI is under contract with the financial institution to make securities available to members. Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution. CUNA Brokerage Services, Inc., is a registered broker/dealer in all fifty states of the United States of America.
Citations.
1 - The Wall
Street Journal, March 25, 2020.
2 - Forbes.com,
March 30, 2020.
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