Dispelling CARES Act confusion

Tax Tips with Ed Slott – Transcript:

“In light of the pandemic obviously we had the CARES Act signed into law and the biggest provision that we’re getting the most questions on from financial advisors is the waiver of RMDs, Required Minimum Distributions, for 2020.

The questions are all over the place, byt let me tell you who this applies to in case you are confused.

It applies to anyone, IRA or company plan that had an RMD due in 2020. It doesn’t have to be a 2020 RMD. So the first group of people that benefit are people that turned 70 and a half in 2019 and had an RMD due by April 1st, 2020. Any portion that they didn’t take in 2019 is waived, because it would have been due in 2020. That group actually gets a special double break, because if they didn’t take any of their first RMD in 2019 and have to take two in 2020, now they’re both waived. So that’s one group where we’ve been getting a lot of questions [from].

Obviously IRA owners that have RMDs all waived, another question that’s been coming up is if it’s waived do they have to take double next year? No. It’s just disregarded. You get a year off.

Another question: What about beneficiaries? Yes, it applies to beneficiaries. Beneficiaries of IRAs and even beneficiaries of Roth IRAs. Remember, with Roth IRAs there are no lifetime required minimum distributions. But non-spouse beneficiaries do have RMDs, but those are waived too.

You may have a group of people that are subject to the five year rule which in essence anybody in that category becomes a six year rule because 2020 is disregarded.

Another question that we’ve been getting is what about a year of death RMD? And this is a good question because it’s a little confusing. Let’s say an IRA owner died in, I don’t know, January 2020. He had an RMD due for 2020, but now it’s waived. So the beneficiaries don’t have to worry about it at all.

Here’s another question, kind of unrelated. We’ve had advisors ask about 72(t) payments. People are on these schedules of substantially equal periodic payments. They want to know if they can take a year off from that? No. This had nothing to do with that. There is no waiver for 72(t) payments. If you missed one of those payments you could trigger the 10% penalty retroactively.

So RMDs – big message a waive for 2020. But the bigger question we’re getting from advisors who are saying: well the law, it wasn’t signed in to law the CARES Act until the end of March, some people already took their RMD. Can they undo that? Well I have to keep you hanging on that because that’s all for this part. But in the next video, I’m going to spend that entire video on giving you the options for undoing unwanted RMDs. So stay tuned.”