Under normal circumstances, retirees over the age of 72 are required to withdraw a minimum amount from their IRA, 401(k), or 403(b) account every year. These withdrawals are called required minimum distributions, or RMDs.
But we aren’t living under normal circumstances right now, are we? Thanks to the coronavirus, this is a very abnormal year.
Which is why, for this year only, retirees don’t have to take RMDs!
You see, back in March, Congress passed the CARES Act, a major stimulus bill designed to help buoy the economy. One of its many provisions was to suspend all RMDs for 2020. That means you can leave that money in your retirement account for the year if you don’t need it now. (If you’ve already taken your RMD for the year, you can potentiallyreturn the funds to your account if you want. More on this in a moment.)
Deciding whether to take your RMD in 2020
So, is delaying your RMD the right thing to do? The answer depends on whether you need to take funds from your retirement account to maintain your standard of living. If you don’t – or if you can draw those funds from somewhere else, like a taxable account – then skipping your RMD is probably the right decision. That enables you to leave the money where it is so it can continue to grow. It will also help reduce your income taxes for 2020, as RMDs are taxed as ordinary income.
If you do need those funds, however, there’s nothing wrong with taking an RMD as usual. After all, that’s what your retirement savings are for!
A couple things to keep in mind if you want to skip your RMD this year:
- Normally, retirees must take their RMD by December 31. For that reason, many people set up automatic withdrawals so they don’t forget. (After all, forgetting usually triggers a hefty 50% penalty.) So, if you want to skip your RMD for the year, be sure to cancel your automatic withdrawal if you have one.
- If you’re philanthropically inclined, you can still take money out of your IRA and donate it to charity. In fact, many retirees often donate their RMD in the form of a qualified charitable distribution, which is tax-deductible. You can still do this in 2020 even if you’re not technically taking an RMD.
- If you are the owner of an inherited IRA, you’re also exempt from taking distributions
- Finally, if you already took your RMD for the year because you didn’t realize you were exempt, you can return it to your account even if it has been more than 60 days since your withdrawal. The deadline for this provision is August 31, so please let us know if you need help. 1
All in all, delaying your required minimum distribution is a good option if you don’t need the money and/or want to reduce your income taxes. But if you have any questions or concerns about your retirement accounts, please let me know. Our door is always open!
1 “IRS announces rollover reflief,” Internal Revene Service, June 23, 2020. https://www.irs.gov/newsroom/irs-announces-rollover-relief-for-required-minimum-distributions-from-retirement-accounts-that-were-waived-under-the-cares-act