Temporary Waiver of Required Minimum Distribution Rules

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The recent market volatility and retraction from previously-established highs in the equity markets have had many financial advisors telling their clients to stay the course and keep investing in their retirement portfolios. Unfortunately, that can be difficult when the IRS requires you to pull money out of your retirement savings under a complex set of rules known as the Required Minimum Distribution (RMD) requirements. Up until recently, the age at which an individual was required to take a RMD from their IRA or employer-sponsored retirement account was age 70 ½. The SECURE Act delayed the beginning RMD age until the taxpayer turns age 72. Taxpayers are allowed to defer their first RMD payment until no later than April 1 of the year following attainment of the prescribed age. The Act also requires the balance of inherited IRAs (including Roth IRAs) with designated beneficiaries to be distributed within ten years of the account owner’s death (with certain exceptions).

Under the CARES Act, RMDs from IRAs and qualified employer retirement plans such as 401(k), 403(b), and 457 plans, will be waived. Such waiver applies regardless of whether the taxpayer has been impacted directly by the pandemic. Additionally, the rule pertaining to the mandatory distribution of an inherited IRA balance received by a non-designated beneficiary prior to the IRA owner’s RMD commencement date is waived with respect to counting the 2020 tax year. These distributions must normally be made within 5 years of the former IRA owner’s death.

BNN Observation: Required Minimum Distributions are based on the value of the account balance at the end of the previous year. Recent market declines put additional pressure on the RMD calculation relative to current portfolio balances. The option to skip taking a RMD in 2020 may provide time for financial markets to recover some ground and keep more investment capital working in your portfolio for the time being.

For more information, please contact your BNN tax advisor at 800.244.7444.

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Disclaimer of Liability: This publication is intended to provide general information to our clients and friends. It does not constitute accounting, tax, investment, or legal advice; nor is it intended to convey a thorough treatment of the subject matter.