CARES Act Planning for Required Minimum Distributions (RMD)

Hi, I’m Robin Tull with Tull Financial Group. Today I’d like to share a little bit about the CARES Act and how it applies to required minimum distributions or RMDs. What are these RMDs? For those of you who are 70 and 1/2 or older, it’s that amount that you are required to take out of your IRA that the government requires you to distribute.

With the COVID-19 crisis, the CARES Act allows you to actually waive that or suspend that for one year. Now this waiver applies to IRAs, 401Ks, 403bs and another qualified retirement plans. If you haven’t yet taken that, you can suspend it. If you suspend it and leave it in your IRA you can leave it for next year’s distribution or maybe you actually want to invest it in some stocks that maybe have gone down in value. The other idea is that you can just continue to take it as normal. If you already received that distribution – some of it or all of it – there’s some options that you have. You can roll it back into the IRA and not be taxed on it, you can keep what you’ve taken out if it’s only taken in partial and suspend the rest, you can do nothing as I said before and just continue to take it like you normally have. What we’re finding that some people wouldn’t have been able to do in the past is actually convert that to a Roth IRA. So, if you have a Roth, you pay the tax and convert it to your Roth IRA.

Let’s talk a little bit about inherited IRAs. An inherited IRA is where you have a parent who might have passed away and you were named as the beneficiary and you’re taking that out over your lifetime or if it’s after the SECURE Act, which passed last year, you’re having to pay that out over 10 years. That also can be suspended, but if you’ve already taken it out in 2020, they’re not going to allow you to roll that back in.

One tax planning idea that we use a lot with our clients who receive RMDs is the qualified charitable distribution or sometimes referred to as a QCD. It allows you to take your RMD amount, pay it to a charity and not be taxed. In this case you could still do the QCD and then just suspend the rest of the RMD. Now – traditional IRAs, Roth IRAs – there’s still time. It’s not the April 15th deadline as we’ve had in the past, now it’s July 15th. If you haven’t contributed, maybe that’s an idea that you want to do to save some income taxes. You have up until July 15th and if you’ve already filed your 2019 tax return you know there is that option of amending the return and still making the contribution up to that July 15th deadline.

Stimulus checks: many people have received them, others have yet to receive them. I know you may simply want to use it to meet expenses that you have. The government’s whole idea of calling it a stimulus check is for you to go out and spend it when the economy gets going again, to go to your favorite restaurant and spend it there, or something like that. But one planning ideas is that you could use it as a partial funding source for that 2019 tax return. Just a planning idea for you to consider.

If you’d like to discuss this, please seek out your certified financial planner or we at Tull Financial Group would welcome the opportunity to meet with you and discuss these planning ideas. Have a great day!