In an effort to keep our clients and radio listeners informed on the latest financial strategies to counter the economic impact of the corona virus, we are starting an email series featuring informational updates on changes to the tax code and insights into financial strategies to help you cope with the pandemic’s economic fallout.

Here are a few highlights of the most recent tax changes found in the $2 trillion coronavirus relief bill, which was approved by the House and Senate and signed into law by President Trump.

Required Minimum Distributions Waived for 2020

The $2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES), was signed into law on March 27th. Included in this massive bill are several relief provisions for retirement accounts. The one that will affect most retirees is the waiver of Required Minimum Distributions (RMDs) for 2020.

This is a huge help because 2020 RMDs would generally be based on the substantially higher account values on December 31, 2019. Here’s why: The Dow Jones Industrial Average closed at 28,462 of December 31, 2019. As of March 26, the Dow was hovering around 22,000. If not for this relief, IRA owners would be forced to withdraw and pay tax on a much higher percentage of their IRA balance. Eliminating the 2020 RMD could help reduce your 2020 tax bill. If you are forced to take RMDs, even though you don’t need the money, this provision could help you save the tax that would otherwise have been due on the RMD.

What it means for 2019 RMDs not yet taken

The RMD waiver also applies to 2019 RMDs that are normally due by April 1, 2020. This waiver applies to IRA owners who turned 70½ in 2019. The Secure Act had increased the RMD age to 72 for those who turned 70½ in 2020 or later. Those who turned age 70½ in 2019 were still required to take their first RMD by April 1, 2020. Now, that RMD is waived.

IRA Beneficiaries subject to the 5-year rule

A less-obvious group who can benefit from this waiver are beneficiaries who inherited an IRA in 2015 or later and who are subject to the 5-year payout rule. Generally, this only applies to non-designated beneficiaries who inherited before the deceased IRA owner reached their required beginning date (April 1st following the age 70½ year). 

For IRAs inherited in 2015, under the 5-year rule, any balance remaining in the inherited IRA would normally have to be withdrawn as the RMD for 2020. Under the just-passed act, beneficiaries now have one more year (until Dec. 31, 2021) to empty the account. For beneficiaries who inherited from 2015 to 2020, the 5-year rule has been transformed into a 6-year rule. 

At The Hidden Wealth Solution, we help Baby Boomers and retirees thrive in retirement. We continue to analyze CARES to determine how its provisions can best be used to help our clients successfully navigate through this difficult time. We are here to help answer our clients’ questions.

Charles Oliver
Wealth Strategist | Best-Selling Author
We Help Baby Boomers and Retirees Thrive in Retirement