People in their 70s and older are used to getting annual required minimum distributions (RMDs) from retirement accounts, whether they want them or not. This is a way for the government to levy an income tax on those accounts, which have been growing tax-free over many years.
In 2020, thanks to the CARES Act, Uncle Sam is giving retirees a break by not requiring RMDs. But to take advantage of this break, you must act really fast. You have until this Friday, May 15 to waive your RMD for 2020 if you do not need it and want to put off the tax payment due on it.
Worth noting: This waiver applies only to the minimum required distribution, and not anything over that amount. People who have inherited IRAs and 401(k)s can also partake in this 2020 RMD waiver.
What if you already took your RMD for 2020? If the RMD was taken between Feb. 1 and May 15, 2020, you are allowed to “roll over” the entire amount of the RMD back into your retirement account (as long as you have not rolled over any other money into that account during the past 12 months). If your RMD was taken in January 2020, you will need to wait and see if the IRS gives blanket relief and allows these earlier RMDs to be rolled back also.
What if tax was already withheld on your RMD? The tax withheld has already been forwarded to the IRS, so to redeposit the full amount of your RMD, you would have to add cash to cover the tax amount. Then in 2021, when you file 2020 taxes, you would claim a credit for the tax withheld.
Must you waive taking your RMD for 2020? NO, definitely not. The CARES Act does not stop you from taking your RMD if you want or need the income.
For more on RMDs, read this blog post by my colleague Brian Whitaker.
