Senior citizens required to take annual distributions from their IRAs, 401(k) plans and 403(b) retirement accounts have several alternative options in 2020. The CARES Act, which provides various forms of relief to individuals suffering the financial consequences of COVID-19, allows seniors to waive their RMDs for this year or payback to their retirement plans any required distributions they may have taken on or after Jan. 1, 2020.
Under existing tax laws, retirees who reach age 72 by April 1 of a calendar year are required to take annual RMDs from their defined-contribution retirement plans. This requirement also applies to individuals who turned 70½ in 2019 and deferred the first RMD until 2020. The amount of the distribution, which is treated as taxable income, is generally determined by dividing the owner’s account balance by a factor based on his or her life expectancy.
The CARES Act, signed into law on March 27, 2019, allows taxpayers with RMD obligations in 2020 to waive those distributions for this year. For those taxpayers who took their 2020 RMDs before the enactment of the CARES Act, the IRS is suspending the normal 60-day period for rolling back those RMDs into their retirement accounts, giving taxpayers until Aug. 31, 2020, to return distributions they may have taken since Jan. 1, 2020. The IRS has advised it will not count these repayments for purposes of calculating the one rollover per 12-month period rule. However, account owners should note there may be a requirement to adopt plan amendments before this relief can go into effect. According to a list of questions and answers issued by the IRS, IRAs do not have to be amended to reflect the RMD waiver for 2020.
Retirees faced with the question of whether to defer their RMDs for 2020 should meet with their financial advisors to weigh the risks and opportunities of doing so based on their own unique needs and goals. For example, retirees who rely on their RMDs to pay living expenses or maintain their lifestyle may want to take their RMDs this year and potentially take more than the minimum requirement. Alternatively, there may be an opportunity for a taxpayer to convert retirement savings in tax-deferred IRAs or 401(k)s into Roth IRAs and Roth 401(k)s and pay the resulting tax liability today when rates are low and income is expected to be reduced in order to enjoy tax-free withdrawals in retirement.
About the Author: Robert Mark Weiss, CFA, is a regional director and financial planner with Provenance Wealth Advisors, an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs, and a registered representative with Raymond James Financial Services. For more information, call (941) 308-1126 or email email@example.com.
Provenance Wealth Advisors (PWA), 515 E. Las Olas Blvd., Ft. Lauderdale, FL 33301 (954) 712-8888.
Robert Mark Weiss is a registered representative of and offers securities through Raymond James Financial Services, Inc., Member FINRA/SIPC. Raymond James is not affiliated with and does not endorse the opinions or services of Berkowitz Pollack Brant Advisors + CPAs. PWA is not a registered broker/dealer and is independent of Raymond James Financial Services. Investment Advisory Services offered through Raymond James Financial Services Advisors, Inc., and Provenance Wealth Advisors.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of the advisors of PWA and not necessarily those of Raymond James. The information contained in this report does not purport to be a complete description of the developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Investments mentioned may not be suitable for all investors.
You should discuss any tax or legal matters with the appropriate professional. Prior to making an investment decision, please consult with your financial advisor about your individual situation.