(Coronavirus) CARES Act and RMDs

A quick note about annual Required Minimum Distributions from IRAs and 401ks and other retirement accounts —

The CARES act, which passed last week and was signed into law on Friday has made a lot of headlines, especially for the “stimulus checks” — the $1200/person which is simply being sent to most Americans.  (It phases out with income, though, so singles who make over $75k and married over $150k may get less or none).

[Those stimulus checks get all the headlines, but for folks whose incomes have gone down or who have lost jobs, the vastly expanded unemployment benefits are the real news — if you know anyone whose income has taken a hit — including self-employed people — make sure they know to contact their state’s unemployment office about benefits!  Unemployment benefits are managed by the state, not the federal government.]

However, there were a few other things in there which affect many of us, particularly retirees:

A smaller one is that there is now an ability to deduct up to $300 of charitable giving even if you do not itemize.  This may be especially nice for folks who have paid-off mortgages and who are therefore taking the standard deduction.

But — the BIG benefit in the CARES act for retirees is this:  2020 Required Minimum Distributions are waived.

This means that most people who were over 70-1/2 last year (or 72 this year — due to another law which passed a few months ago raising the age!) — who would otherwise have had to take a (usually taxable) distribution from his or her retirement accounts — do NOT have to take those distributions.

If you have RMDs on auto-pilot (as many people do via various custodians) — make sure to contact them and turn them off if you do not actually need the cash.

Among the greater population, some 80% of people over those ages take more than that minimum out of their retirement accounts anyway, to pay the bills.  For those folks, this won’t change anything.  If you need the money to spend, you need the money to spend.

But for the 20% or so of those old enough to be required to take distributions but who don’t actually need the money to pay the bills — people who typically just take the distribution, pay the taxes, and deposit the proceeds into another account to invest and grow/save — those folks do NOT need to take the distribution or pay those taxes for 2020.

We usually walk through everyone’s accounts later in the year to make sure that the annual RMDs are taken.  We’ll certainly go over that with our clients when the time comes.

But this is an extremely unusual situation and we want to make sure that anyone with accounts outside of Meyers Wealth Management are aware that they may not need to take these distributions, and, if they were automated, to remember to turn them off.

If you have ALREADY taken a distribution in 2020 which you don’t need to have taken — if if was less than 60 days ago, it may be able to effectively be undone (via a “60 day rollover” rule).  But that, too, is somewhat exceptional.

If you have any questions, please let us know.

And if you know anyone else who may benefit from this information, please pass this note along.

Thanks so much.  Please stay safe!


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