Waiver of RMDs – How the New Rules Will Work

Anyone with an RMD (required minimum distributions) due in 2020 from a company plan – like your 401(k) or 403(b) plan, or an IRA – qualifies for the new rules under the waiver, including beneficiaries, and including those who turned 70 1/2 in 2019 and had to take their first RMD by April 1, 2020.

This will provide great help, because 2020 RMDs are based on the retirement account value on December 31, 2019, when the DOW was over 28,000 (compared to where it is today; around 23,500 as of this writing). But as we all know, this can swing wildly as we are still in an uncertain economic situation.

If the 2020 RMDs had not been waived, you likely would have had to withdraw a greater percentage of your IRA or plan balance and pay a big tax bill on value that no longer exists. So, it’s a good thing that Congress gave us all a year off to sit this out and see what happens, and hopefully have more time to recover losses.

Any Downside to a Waiver of RMDs?
No. Remember that the RMD is a minimum required distribution. You can always take more, so even though RMDs are waived, you can still withdraw any amount you need. You can withdraw or not, depending on your own situation. There are no rules to worry about.

Charity Benefit
Even though RMDs are waived, you can still use your IRA to get a tax break on giving to charity. If you normally give to a charity, do it with Qualified Charitable Distributions (QCDs) from your IRA. The funds are directly transferred from your IRA to a charity and excluded from income. If there were RMDs, this would go towards satisfying the RMD; but even if there are no RMDs this year, this is a better way to give to charity and reduce your taxable IRA balance at the same time. Only IRA owners and beneficiaries who are age 70 1/2 or older qualify for this, though. This age did not change even though the age for RMDs was increased to 72.

If you don’t do a QCD, your only charitable contribution is likely to be the new $300 above-the-line deduction created by the bill. (‘Above-the-line’ means it comes before you calculate your adjusted gross income). Otherwise, you probably will get no benefit from your donations, since most people take the standard deduction. QCDs give you back a tax benefit that would otherwise be lost. QCDs are another reason to withdraw from your IRA, even if you don’t have to.

If there is any downside to all of this RMD relief, it’s that, unfortunately, anyone who needs the funds and takes the RMD anyway will not benefit. According to the Treasury’s own numbers, they must estimate that roughly 80 percent of IRA owners take more than the minimum, so this relief will not help a majority of those who rely on their retirement savings for annual income.

Bottom Line
RMDs due for 2020 are waived, but you can take them if you need the funds or to take advantage of the tax planning opportunities opened for this year.