{"id":51749,"date":"2020-05-20T22:31:57","date_gmt":"2020-05-21T03:31:57","guid":{"rendered":"https:\/\/resource-center.hrblock.com\/?p=51749"},"modified":"2021-07-06T12:25:43","modified_gmt":"2021-07-06T17:25:43","slug":"cares-act-waives-rmd","status":"publish","type":"post","link":"https:\/\/hrbcomlnp.hrblock.com\/tax-center\/income\/retirement-income\/cares-act-waives-rmd\/","title":{"rendered":"CARES Act waives 2020 Required Minimum Distribution (RMD) for retirement investors"},"content":{"rendered":"<p>In the wake of coronavirus uncertainty, the volatile stock market has unnerved even seasoned investors. For older retirement investors, falling security prices can mean the additional worry of locked-in losses as they are required to make annual withdrawals. Thankfully, new legislation \u2014 the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) \u2014 waives RMD obligations for the 2020 tax year.<\/p>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"size-full wp-image-51752 alignright\" src=\"https:\/\/hrbcomlnp.hrblock.com\/tax-center\/wp-content\/uploads\/2020\/05\/RMD-waiver-thumbnail.jpg\" alt=\"RMDs are waived from retirement savings\" width=\"240\" height=\"160\"><\/p>\n<p>Why does this waiver matter?&nbsp; If you\u2019re normally required to take them, the suspension of RMDs lets you do two things:<\/p>\n<ul>\n<li><strong>Ride out market turbulence.<\/strong> Taking your RMD in a down market can mean selling shares at a lower price.<\/li>\n<li><strong>Avoid a 50% penalty<\/strong> of your RMD amount for not taking the distribution this year.<\/li>\n<\/ul>\n<h2>How RMDs work without a waiver<\/h2>\n<p>In a normal tax year, RMDs work like this:<\/p>\n<ul>\n<li>If you own a <strong>Traditional IRA<\/strong>, you can keep money fully invested in that tax-advantaged account until you reach your early 70s.<\/li>\n<li>If you own a <strong>401(k),<\/strong> you can use the same rule to keep your account invested until your early 70s or you can keep the account until you retire from your employer who maintains the plan.<\/li>\n<\/ul>\n<p><strong>Note:<\/strong> Recent rule changes for <a href=\"https:\/\/www.hrblock.com\/tax-center\/irs\/tax-responsibilities\/irs-required-minimum-distribution\/\">Required Minimum Distributions<\/a> move the starting age from 70 \u00bd to 72 years old if you turned 70 \u00bd after December 31, 2019.<\/p>\n<p>Then, each year after you start RMDs, you\u2019ll have the entire calendar year to withdrawal your specific minimum amount. When you take your RMD is up to you. It could be all at once at the start of the year or at the end. Or, you could spread it across several months in the year.<\/p>\n<p>The important part is making sure you take it. Normally, you\u2019d face a 50% penalty on your distribution if you don\u2019t take it. For example, let\u2019s say you\u2019re required to take a $4,000 RMD and you forget to take the distribution. Unfortunately, you\u2019d now owe the IRS $2,000 in penalties for missing that year\u2019s RMD.<\/p>\n<p>So, recent market drops mean some investors are faced with either taking a loss or facing the penalty.<\/p>\n<h2>The RMD suspension gives retirement investors flexibility<\/h2>\n<p>The new RMD rules from the CARES Act removes that either\/or situation. It takes the pressure off retirement account owners by buying them additional time for potential market recovery. With RMDs suspended for 2020, you can wait until 2021 before you must take your next minimum distribution.<\/p>\n<h2>What does the RMD change in the CARES Act allow?<\/h2>\n<p>Knowing that taxpayers take their RMDs at different times in the year, the rules account for a few scenarios.<\/p>\n<p>Specifically, you can choose to:<\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li><strong>Skip your RMD for 2020.<\/strong> You should contact your plan provider or investment firm to make sure your Required Minimum Distribution is suspended for 2020, especially if you have an automatic withdrawal scheduled.<\/li>\n<li><strong>Roll RMDs already taken back into an IRA within 60 days.<\/strong> There are a couple of caveats here.\n<ul>\n<li>You can only complete a rollback for the RMD if you haven\u2019t done a rollover in the last 12 months.<\/li>\n<li>If you took an RMD between February 1 and May 15, you have more than the normal 60 days. With the new rules, you have until July 15, 2020, to complete the rollover.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p>Not sure how it all works? Review the examples at the end of this article to see how the rules apply to specific situations.<\/p>\n<h2>How does the RMD suspension work for inherited IRAs?<\/h2>\n<p>In most cases, an RMD is an annual distribution. That\u2019s true for the Traditional IRAs and 401(k)s as mentioned above. However, what if you\u2019ve inherited an IRA and are using the 5-year rule?<\/p>\n<p>Generally, you\u2019d have a window of 5 years before the IRS requires you to remove the funds from the account. With the CARES Act, RMD suspension rules, 2020 is not counted within that 5-year period. This means you can extend or suspend that time by one more year.<\/p>\n<p><strong>Note:<\/strong> If you\u2019ve already redeemed money from an inherited IRA, you can\u2019t roll it back.<\/p>\n<h2>CARES Act RMD waiver examples for 2020<\/h2>\n<p>Let\u2019s take a look at three situations to see how the new rules play out.<\/p>\n<p><strong>Juan (age 73)<\/strong>&nbsp;Juan\u2019s RMD amount for 2020 was $4,500. He had planned to take the entire amount out on December 31. With the Required Minimum Distribution waiver, Juan can skip his 2020 RMD and won\u2019t need to worry about the penalty.<\/p>\n<p><strong>Betty (age 75):<\/strong> Betty\u2019s total RMD amount for 2020 was $12,000. She opted to receive the RMD monthly, with an automatic distribution of $1,000 set for the 15<sup>th<\/sup>&nbsp;of each month. She received a $1,000 distribution in January, February, March, and April before she heard about the RMD waiver.<\/p>\n<p>As of May 20, Betty can:<\/p>\n<ul>\n<li>Stop the rest of her 2020 automatic distributions.<\/li>\n<li>Roll over the February, March, and April. She has until the later of 60 days after the distribution or July 15, 2020, to make the rollover. She hasn\u2019t completed a rollover in the prior 12 months, so this option is still available to her.<\/li>\n<\/ul>\n<p><strong>Melissa (Inherited IRA owner):<\/strong>&nbsp;Melissa inherited an IRA from her Aunt who passed away in 2018. Before the CARES Act, she would have been required to take the entire balance in the IRA by December 31, 2023. She now has until December 31, 2024, to take the entire balance because 2020 will not be counted in the 5-year period.<\/p>\n<h2>Have questions about the CARES Act or your RMDs?<\/h2>\n<p>At H&amp;R Block, we want you to feel confident as you make financial decisions, especially in these times of uncertainty. If you have questions about your Required Minimum Distributions from your retirement account, please know that <a href=\"https:\/\/www.hrblock.com\/tax-offices\/\">H&amp;R Block\u2019s tax pros<\/a> are here for you.<\/p>\n<p>Looking for more information about the CARES Act or coronavirus-related changes?&nbsp; Check out our <a href=\"https:\/\/www.hrblock.com\/tax-center\/coronavirus-tax-impact\/\">Coronavirus Tax Resource Center<\/a> to find information about extended tax deadlines, stimulus payments, and more.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>In the wake of coronavirus uncertainty, the volatile stock market has unnerved even seasoned investors. For older retirement investors, falling security prices can mean the additional worry of locked-in losses as they are required to make annual withdrawals. Thankfully, new legislation \u2014 the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) \u2014 waives RMD [&hellip;]<\/p>\n","protected":false},"author":406,"featured_media":51751,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[24,48],"tags":[],"class_list":["post-51749","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-income","category-retirement-income"],"acf":[],"yoast_head":"<title>CARES Act and Required Minimum Distributions (RMD) | H&amp;R Block<\/title>\n<meta name=\"description\" content=\"Not sure if you have to take your required minimum distribution (RMD) in 2020? 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