Elimination of the Required Minimum Distribution rules for 2020 – “The IFs”

Greetings again from the Bertz, Hess Professional Service Team! This week we will kick it off with a few updates and reminders, followed by a more robust discussion on the new rules for Required Minimum Distribution (RMD) in 2020.

Updates and Reminders

July 15th deadline – As mentioned in our previous communications, there could be a number of income tax payments due on July 15th. Given the impact of COVID-19 on many small businesses, take some time and consult with our Bertz, Hess & Company professional team on what makes sense for your 2020 estimated payments.

PPP Flexibility Act Highlights – Another topic we wanted to reference from last week are these updates to the PPP Loan program.

  1. Increasing the 8-week timeline to use the loan to 24 weeks
  2. Increasing the amount of allowable non-payroll expenses from 25% to 40%
  3. Increasing the term of the loan from 2 years to 5 years in certain cases

RMD Rules for 2020

The CARES Act waived the requirement to take an RMD from certain defined contribution plans and IRAs for the calendar year 2020. This waiver includes RMDs from Traditional IRAs, rollover retirement accounts and inherited IRAs.

If you do not take part or all of your RMD in 2020, the reduction in income could result in the following potential tax benefits:

  1. Less overall tax on your 2020 tax return.
  2. Less taxable Social Security benefits
  3. Lower cost for your 2022 Medicare coverage.
  4. Increased deduction on Schedule A for out-of-pocket medical expenses.
    Less income taxed on IRS Form 8960 – Net Investment Income Tax.
  5. If you do not take a distribution in 2020 you do not need to take an extra distribution in 2021 or any other future year.

If you normally depend on some or all of your RMD proceeds to pay your living expenses and you have a non-retirement investment account it is possible for you to take advantage of the RMD waiver. You can take the money you need for living expenses from your non-retirement investment account. The money you receive from a non-retirement investment account would be taxable only to the extent that there are gains on the investments sold in order to generate the funds distributed to you. Most likely those gains would be taxed at the lower capital gain rate while IRA distributions are taxed at the higher ordinary tax rates.

If you have not received your RMD for 2020 and you want to take advantage of the RMD waiver you should contact the financial institution who holds your IRA to determine what you need to do to block your RMD for 2020 from being distributed.

If you normally do part of your charitable giving from your IRA by having the contribution sent directly from your IRA to a charitable organization that option is still available for 2020. This distribution is called a Qualified Charitable Distribution (QCD). However, there may be a reason, which is too technical to explain in this brief overview, for you to delay those QCDs until 2021 and then doing double the amount in 2021.

If you have already received some or all of your RMD in 2020 there is potentially a way to undo those distributions based on the date distributed:

  1. If the distribution occurred in January of 2020 currently there is no way to undo those distributions.
  2. If the distribution occurred between 2/1/2020 and 5/15/2020 the distribution would need to be undone by 7/15/2020.
  3. If the distribution occurred after 5/15/2020 the distribution would need to be undone with 60 days after the date of the distribution.

If the distribution you already received was from an inherited IRA there is currently no way to undo a distribution from an inherited IRA.

If you have tax withheld from your IRA distribution and you decide to take advantage of the RMD waiver for 2020 you may need to make estimated tax payments. On the other hand, if you normally pay your tax by making estimated tax payments and you decide to take advantage of the RMD waiver for 2020 you may want to reduce your estimated tax payments.

As you can see the CARES Act waiving the RMD requirements for 2020 created many options for you. Your Bertz, Hess & Co. tax and business advisor will be happy to discuss the benefits of waiving your 2020 RMD and any other questions that you have!

Thank you and enjoy your weekend!

The Professional Service Team at Bertz, Hess & Co., LLP

News > Elimination of the Required Minimum Distribution rules for 2020 – “The IFs”