On March 27th 2020, the federal government signed into law The C.A.R.E.S. Act – The Coronavirus Aid, Relief, & Economic Security Act; this law provides unprecedented stimulus to combat this viral outbreak, which has upended the stock markets and threatened to all but bring the economy to a halt. This economic stimulus bill provides a number of measures meant to provide relief for both individuals and small businesses but a very important one exists for all who are withdrawing from their IRA accounts.
One key provision that was put into place is the waiver of required minimum distributions (“RMD’s”) for the year 2020. This waiver means that for all those who have not taken their RMD this year will no longer be required to until next year. For those that already withdrew their RMD in 2020, you will have the standard 60 days to roll that money back into the retirement account if you decide you would like to. By avoiding the 2020 RMD, you will enjoy some tax relief at the end of the year, since these are monies you will not have to count as income on your 2020 tax return.
Here is the logic behind it: The RMD figure is calculated based on the previous year-end balance; this means it’s based on the Dec 31st 2019 balance, which was a time when the markets were being valued much higher than where they are currently. Therefore, it would seem unfair to force retirees to take an RMD withdrawal based on an account value that more than likely was higher than where it is right now. In addition, and perhaps more important, is the fact that withdrawing monies from an account after it has suffered a loss further prolongs the amount of time it would take for the account to climb back to previously higher values.
For these reasons, we like this decision that our government has made with regard to waiving 2020 RMD’s. We strongly advise that IF you can avoid taking your RMD this year, that you do so. This will ease your income tax burden next year, as well as help to ensure we don’t lock in any unnecessary losses. Lastly, if you have already taken your RMD, or a portion of your RMD, keep in mind that you have sixty days from the day of your withdrawal to essentially turn around and return that distribution back into your retirement account.
Please if you have any questions do not hesitate to reach out to us.
Daniel J. Murphy, CFP®
Murphy Wealth Management Group
60 Merritt Blvd., Suite 106
Fishkill, NY 12524