CARES Act

On Friday afternoon, March 27th, the President signed into law the over 2 trillion Coronavirus Aid, Relief, and Economic Security (Cares) Act. This is largest stimulus package ever passed in the history of our country. With its wide-ranging provisions this act is designed to provide loans, rebates, outright payments and tax credits to company’s and individuals to help stabilize our economy during the COVID-19 shutdowns.

One of the many provisions in the plan gives relief to retirees who are subject to required minimum distributions from their IRA or retirement plans.  The CARES Act eliminates all RMDs for the year 2020, for individual retirement account holders as well as to beneficiaries taking distributions from an inherited IRA.  Also, individuals who turned 70.5 in 2019 who did not take their first RMD by December 31, 2019, do not need to take their first RMD by April 1, 2020 or their 2020 RMD by December 31, 2020. This rule provides relief for individual retirement account holders and

We are already 3 months through the year and recognize that some of you may have already taken RMDs for 2020. The provision allows for IRA and retirement plan owners who have already distributed their RMD to return it under the 60-day rollover rule. The once per year 60-day rollover rule allows an individual to return the distribution within the 60-day rollover window thus negating the RMD.

Now some of you may have taken your RMD early in the year and are not eligible for the 60-day rollover rule. If this is the case, but you can show that you have been negatively impacted by the COVID-19 crisis to qualify for a Coronavirus Distribution (a separate provision under CARES), then the rollover can still be done anytime in the next 3 years.

This provision provides individuals that do not need to take their RMD for living expenses, or for those who need the income but have non-retirement accounts they can pull income from the opportunity to significantly reduce their taxable income for 2020. Aside from the obvious benefit of reducing their tax bill they may potentially reduce their Medicare premium in a future year.

Also, with the elimination of RMDs for 2020, ROTH conversions may make more sense than ever.

Please reach out to your advisor if you have any questions or believe this provision applies to you.