Planning

A One-Time Gift From the IRS

A One-Time Gift From the IRS

Well….. not really one time because this also happened in 2009 during the great recession.

Under the recently passed Coronavirus Aid, Relief and Economic Security (CARES) Act, there are a number of provisions designed to stimulate the economy.  One of these provisions may benefit retirees who don’t necessarily rely on distributions from their retirement accounts to meet every day living expenses.

Under current law, Required Minimum Distributions (RMDs) must be taken from IRAs, SEPs, 403-Bs and 401-ks when participants reach age 72.  Retirees who turned 70 ½ in 2019 must also take RMDs under the transition rules of the Secure Act that was signed into law last year.

The CARES Act contains a provision that allows retirees to forgo taking RMDs from any and all retirement accounts this year.  As most everyone knows, RMD amounts are calculated using the value of the account at the end of the prior year.  Because of the steep market decline in the first three months of 2020, the required withdrawal amount could now be a much larger percentage of the current value of a retiree’s account.

As additional clarification, there is no age requirement to qualify for this waiver of RMDs. Inherited IRAs are also included in the waiver and it even appears that non spousal beneficiaries who are withdrawing funds under the 5-year rule, now have an extra year to fulfill the 5-year requirement, since RMDs can be skipped in 2020.

Good income tax planning would suggest if you don’t need funds from your retirement account for living expenses, you should not withdraw anything from those retirement accounts in order to save federal & state income taxes and allow the retirement account investments to hopefully recover some value as we emerge from the Coronavirus pandemic.

For those clients who already took distributions from their retirement accounts earlier in the year, you may be able to roll those distributions back into your retirement account to avoid being taxed on the distribution.  Every person is entitled to one “rollover” per year back into a retirement account as long as the rollover occurs within 60 days of the date the distribution was taken.  We believe the IRS will soon release additional guidance as a result of the CARES Act that may allow rollovers which fall outside the 60-day rule.  Stay tuned and consult with your tax advisor for personalized planning if, and when this additional guidance is promulgated.

As always, please contact your Altavista advisor should you have any questions, or if you would like any additional information.

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