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IRA RMD Rules Have Changed — Here Are 6 Moves to Make

IRA and other qualified plans in 2020. This means retirees can avoid having to withdraw money from their retirement nest egg while the stock market is down, which might otherwise have a negative long-term impact on their portfolio’s value. With RMDs suspended, here are six moves you should consider making with your IRA.” data-reactid=”13″>Retirees who own a traditional individual retirement account face unique choices this year that have been brought about by the Coronavirus Aid, Relief, and Economic Security Act. One of the biggest changes is that the act suspended retirees’ need to take a required minimum distribution from their IRA and other qualified plans in 2020. This means retirees can avoid having to withdraw money from their retirement nest egg while the stock market is down, which might otherwise have a negative long-term impact on their portfolio’s value. With RMDs suspended, here are six moves you should consider making with your IRA.

taxes, says Tim Steffen, senior consultant in the advisor education group at Pimco. If you’ve missed the 60-day window, there’s still a chance to reverse it. With the tax-filing deadline pushed back to July 15, any taxes due April 1 or later were delayed to July 15. That includes 60-day rollovers. "Anyone who took money out Feb. 1 or later has the ability to roll that back to their IRA by July 15," he says. If you withdrew money in January and you or a family member were affected by the pandemic, you may have some options to reverse it, he adds.” data-reactid=”15″>You always have 60 days to reverse an RMD and return that money without taking a penalty or having to pay taxes, says Tim Steffen, senior consultant in the advisor education group at Pimco. If you’ve missed the 60-day window, there’s still a chance to reverse it. With the tax-filing deadline pushed back to July 15, any taxes due April 1 or later were delayed to July 15. That includes 60-day rollovers. “Anyone who took money out Feb. 1 or later has the ability to roll that back to their IRA by July 15,” he says. If you withdrew money in January and you or a family member were affected by the pandemic, you may have some options to reverse it, he adds.

weather the current market volatility. It’s a good thing that Congress acted, she says, as RMDs would have represented a bigger bite for retirees this year because the distribution levels are calculated on the prior year’s balances. In 2019, those balances were larger than they are now, so the distribution would be disproportionately larger than it was really intended to be, she says.” data-reactid=”17″>Audrey Blanke, a certified financial planner and regional financial planner for Baird, says the RMD waiver gives retirees some flexibility. If you don’t need to take a distribution, you can let your holdings sit untouched to weather the current market volatility. It’s a good thing that Congress acted, she says, as RMDs would have represented a bigger bite for retirees this year because the distribution levels are calculated on the prior year’s balances. In 2019, those balances were larger than they are now, so the distribution would be disproportionately larger than it was really intended to be, she says.

Roth IRA, which is an account funded by after-tax dollars that lets earnings grow tax-free. However, with RMDs waived, retirees can take a regular distribution, pay the tax on it and use that money to fund a Roth IRA, Blanke says. Retirees can fund the Roth IRA with the amount of money they would have otherwise taken as an RMD, or they can withdraw enough money to avoid going into the next tax bracket, she adds. Blanke recommends working with a financial planner on Roth conversions, and make sure you have enough money outside of your IRA to pay the taxes.” data-reactid=”19″>In normal years, retirees can’t take their RMD money and put it into a Roth IRA, which is an account funded by after-tax dollars that lets earnings grow tax-free. However, with RMDs waived, retirees can take a regular distribution, pay the tax on it and use that money to fund a Roth IRA, Blanke says. Retirees can fund the Roth IRA with the amount of money they would have otherwise taken as an RMD, or they can withdraw enough money to avoid going into the next tax bracket, she adds. Blanke recommends working with a financial planner on Roth conversions, and make sure you have enough money outside of your IRA to pay the taxes.

The CARES Act waiver decision affects almost every type of retirement vehicle, but there are some exceptions with RMDs. Steffen says the exceptions apply to nongovernmental 457 plans. If you work for a private company with this plan, you still need to take an RMD if appropriate. If you have a defined benefit plan that pays you a pension annually, those payouts are still required. Payments from annuities that have been annuitized fall under the exception. A final related exception are 72(t) distributions, Steffen says. Generally, if you take money out of a retirement plan before age 59½, there’s a 10% penalty. That penalty is waived if you take what’s known as a “series of substantially equal periodic payments.” If you take one of these 72(t) distributions, you still must continue it this year. “You have to continue taking those, or risk triggering the penalty on all of your prior distributions,” he says.

financial planner regarding the best way to tap assets and try to find money outside your IRA to pay those taxes so you don’t have to withdraw too much.” data-reactid=”23″>If you’re a retiree who needs to tap into your IRA to support your lifestyle, Blanke says you should “absolutely” take that money. RMDs are simply the smallest amount you need to take out, a requirement that now starts at age 72 — rather than 70½ as it used to be, thanks to a different congressional act. Blanke says if you live off the RMDs or take out more than the minimum from your IRA, work with a financial planner regarding the best way to tap assets and try to find money outside your IRA to pay those taxes so you don’t have to withdraw too much.

One of the downsides for charities with the waiver of RMDs is that there is less incentive for people who use their RMDs to make qualified charitable distributions. Charitable distributions are one way people can fulfill the requirement to withdraw money from their retirement accounts without having to pay taxes on it. However, Lawrence Pon, a certified public accountant and financial planner at Pon & Associates, says these are still valid options for charitably minded retirees, even if RMDs aren’t necessary this year. If you’re older than 72, charitable donations still make sense if you don’t itemize your annual taxes because donations help to reduce Medicare premiums since you won’t add income to your adjusted gross income and donations may reduce the tax you would pay on Social Security benefits.

— If you already took an RMD, you may be able to reverse it.

— Do nothing and let your holdings recover after the market sell-off.

— Take a regular distribution and convert it to a Roth IRA.

— Double-check if your retirement plan gets a waiver.

— If you need the money, you can still make withdrawals.

— Use charitable distributions to avoid future tax liability.

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