As part of the relief provided by the recently passed CARES Act, the government has suspended required minimum distributions (RMDs) for 2020 – giving up short-term tax revenue in favor of offering much-needed support to retirees.  This provision addresses concerns investors have about being forced to liquidate holdings during depressed market conditions and allows an opportunity to potentially recover from the market’s recent volatility. This is the second change related to RMDs within the past year; the SECURE Act in 2019 increased the age requirement to begin minimum distributions from age 70.5 to age 72. Having flexibility on distributions can be beneficial during a time when many retirees are feeling the effect of the global pandemic. 
The CARES Act suspends RMDs for 2020 from IRAs and defined contribution plans such as 401(k)s, 403(b)s, 457(b) plans. It also allows account owners to skip their 2019 RMD (if it was their first year and they had not yet taken an RMD by April 1, 2020). If you do not think you will need your RMD for 2020 and have your account set up automatically, now is the best time to talk to your service provider about suspending withdrawals for 2020. Unfortunately, if you have already taken an RMD for 2020 (as many people do in January), the bill does not provide for someone to put back a distribution already taken – it will still be treated as taxable. However, if you took an RMD from an IRA or 401(k) within the last 60 days, you may be able to do a 60-day rollover to an IRA and not have it treated as a taxable distribution in 2020. *Note, you should always consult a qualified tax advisor regarding your specific situation.
While there seems to be room for interpretation as to whether the flexibility of the bill impacts inherited IRAs and 401(k)s, looking at the purpose of the bill – to provide relief to Americans effected by this crisis – suggests that it pertains to any RMD from any individual-account retirement plan. Additionally, the bill does deal specifically with certain types of inherited accounts, such as those going to an estate, charity, or certain type of trust at death. Typically, these types of beneficiaries have to distribute the account within five years of the death of the owner, but the CARES Act stipulates that if one of the five years includes 2020, beneficiaries get an extra year, essentially turning a five-year distribution period into six-years. Since this group of beneficiaries usually receives less favorable RMD treatment than others, it stands to reason that RMDs for all inherited accounts will be suspended during 2020.
Another item of import in the CARES Act is the waiving of the withdrawal penalty for those Americans impacted by the Coronavirus crisis. Prior to the CARES Act, those who took retirement distributions before age 59.5 were subject to a 10% early withdrawal penalty tax. In 2020, those impacted by the crisis may take up to $100,000 from their IRA or 401(k) without the increased penalty tax (the distribution would still be subject to normal taxation rules regarding distributions.) The criteria to be eligible for this exception is broad considering the overall effect of the pandemic on different people. According to the rule, the account owner or their spouse must have been a.) diagnosed with COVID-19 or b.) have experienced adverse financial consequences as a result of the pandemic due to being quarantined such as having been laid off, furloughed, having reduced housing, childcare issues, and many other reasons. Lastly, the CARES Act does not directly impact qualified charitable distributions (QCD) rules.

In suspending RMDs, the government is giving people more control over their funds by reducing the requirement to sell investments and create a taxable event during a time of need. The purpose of the CARES Act is to provide economic relief to the millions of Americans struggling due to this pandemic, and this is just one small, though important, provision in a much larger package. The professionals at Wealthview Capital stand ready to work with you and your tax advisor to explore ways to optimize the prudent management of your financial resources in light of this new bill.
Take care, stay safe and keep washing your hands!