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CARES Act Changes Rules for RMDs for 2020 and Beyond

November 17, 2020

The Coronavirus Aid, Relief and Economic Security (CARES) Act waived RMD requirements for 2020. What’s the next step for those nearing the RMD requirement? We share the details here.

Attention those 70 ½ and older…wondering when your first required minimum distribution (RMD) is due? The Coronavirus Aid, Relief and Economic Security Act (Cares Act) passed by the House of Representatives this year waives the RMD requirement for 2020. For 2021 and beyond, the age requirement changes to 72. Here’s what you need to know going forward.

RMD background

Typically you have to take your first RMD by April 1st of the year following the year you turn 70 ½, as we have covered in the past. The SECURE Act recently raised the age for RMD to 72, as reflected in our blog, SECURE Act Changes Rules for RMDs but if you turned 70 1/2 in 2019, the old rules applied to you (until the CARES Act waived the requirement).

What does the CARES Act change?

Under the CARES Act, RMDs are waived for IRA owners who turned 701/2 in 2019 and who were planning on taking their distribution by April 1, 2020. If you are in this situation, there is a double benefit. Not only do you not need to take your 2019 RMD in 2020, you do not have to take your 2020 distribution in 2020!

For those already taking RMDs annually, you are not required to take a distribution for 2020. Keep in mind that your RMD distribution for 2020 is based on the value in your retirement accounts as of December 31, 2019, when the Dow was at 28,000. The delaying of the 2020 distributions gives your retirement portfolio a chance to recover from the ups and downs of the market this year.

Two caveats - in connection with your 2020 estimated tax payments, if you are not taking your 2020 RMD, you may need to reduce your quarterly payments. Also, if you had taxes withheld on your RMD, and you do not take it for 2020, you may have to increase your 2020 quarterly estimated tax payments!

What changes in 2021?

Due to the CARES Act change, RMD requirements were halted for 2020. The requirements will be “back to normal” in 2021. So, starting in 2021, anyone turning 72 must begin taking RMDs.

Before you decide not to take your 2020 RMD, give us a call and we can guide you through the options.

Questions? Contact us.

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