The CARES Act and Required Minimum DistributionsSubmitted by JMB Financial Managers on November 6th, 2020
In hopes of stimulating the economy during the COVID-19 pandemic, the federal government passed the CARES Act, that not only provided aid to those in need but included changes to your retirement plan. As we near the end of 2020, we wanted to provide you with the latest information on how the CARES Act impacts you, your retirement, and your taxes.
The Cares Act
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) waived Required Minimum Distributions (RMDs) for the rest of 2020.
When Do I Start Taking RMDs?
When you reach age 72. The SECURE Act passed in December 2019, increased the required RMD age from 70½ to 72 starting on January 1, 2020. If you turned 70 ½ before December 2019 you are still obligated to begin your RMDs instead of waiting until you turn 72.
What Does That Mean for RMDs?
If you want to lower your income for the year – and therefore lower your taxes you have the option to skip your RMD for 2020. Since RMDs count as taxable income, leaving the money where it is will increase your future assets available for withdrawal. Additionally, RMDs are calculated based on age and account balances at the end of the year. Since 2019 was a positive year for the markets, your RMD is likely based on a greater dollar amount than December of 2018.
What Types of Retirement Accounts are Eligible?
401(k), 403(b), and IRA accounts all are eligible for the relief provided by the CARES Act. Inherited IRA accounts are also eligible for RMD suspension in 2020.
On a related note, if you have taken coronavirus-related withdrawals from your 401(k), 403(b), IRA, or other eligible retirement plan, you now have the option to repay the amount of the withdrawal over the next three years – rather than the usual 60-day period for avoiding taxes.
Additionally, you spread your taxes due over the next three years if you wish; for example, if you made a $12,000 coronavirus-related withdrawal from your retirement account in 2020, you may declare $4,000 of income on your tax returns for 2020, 2021, and 2022 instead of declaring all $12,000 in 2020.
More Questions? We’re Here to Help.
At JMB Financial Managers, we are committed to helping you achieve your financial goals. For more information about the CARES Act and how it affects you or to speak with a certified financial planner, contact us today.
If you're an existing JMB Financial Managers and would like to waive your RMDs for 2020, please reach out to the office to let us know as soon as possible.
About the Author
Jack Brkich III, is the president and founder of JMB Financial Managers. A Certified Financial Planner, Jack is a trusted advisor and resource for business owners, individuals, and families. His advice about wealth creation and preservation techniques have appeared in publications including The Los Angeles Times, NASDAQ, Investopedia, and The Wall Street Journal. To learn more visit https://www.jmbfinmgrs.com/.