RMDs: Can You Forgo Taking RMDs in 2020?

Can You Forgo Taking RMDs in 2020?

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, recently passed into law, includes a number of measures designed to stimulate the economy. One provision allows retirees to forgo taking Required Minimum Distributions (RMDs) from IRAs or 401(k)-type plans this year.

RMD amounts are based on the value of the account at the end of the previous year. “Because most accounts have seen a steep decline in 2020, the amount of the required withdrawal would have been a much larger percentage of a retiree’s account,” explains Rob Williams, VP of financial planning, retirement income and wealth management at the Schwab Center for Financial Research (SCFR). “The new law lets retirees keep that money in their accounts, potentially recouping some of the market losses when the economy turns around.”

Some common questions retirees are asking about RMDs in light of the CARES Act:

1. Do retirees have to take RMDs from retirement accounts in 2020? 
“No, all RMDs have been suspended for 2020,” says Hayden. This waiver includes any retirement account subject to RMDs, such as IRAs, 401(k)s, Roth 401(k)s and inherited accounts.

2. What age do I have to be in order to qualify for the waiver?
If you are subject to RMDs, the waiver applies to you regardless of age. It includes original account owners over age 70½ (or 72, under the SECURE Act), original account owners who turned 70½ in 2019 but have not taken their distribution yet, and inherited-IRA beneficiaries of any age (see number 3, below).

3. Does the waiver apply to inherited IRAs
Yes. The waiver extends to inherited IRAs (including stretch IRAs), as Schwab interprets the law. It even appears that inherited IRAs with non-spousal beneficiaries, which would normally need to be liquidated within 5 years of the original account-holder’s death, are not required to take a distribution in 2020. You should consult with your tax advisor, but Schwab’s interpretation is that beneficiaries have an extra year to fulfill the 5-year requirement, since RMDs can be skipped in 2020.