A year without RMDs? And other changes

Strategies under the CARES Act

by | April 21, 2020 | General | 6 comments

"The great victory, which appears so simple today, was the result of a series of small victories that went unnoticed"

— Paulo Coelho

We hope this message finds you safe and cozy at home with loved ones, maybe enjoying a good book or TV show, hopefully finding time to relax and reflect. 
 
Sometimes it seems like our personal finances are just a blip on the radar next to these bigger issues for humanity… nonetheless, we’re here to be your eyes and ears when we learn about new opportunities. We have a few ideas to share about the recent CARES Act, and we encourage you to pass this along to others in your circle if you think they could benefit, too.
  1. If you’ve been financially negatively impacted by Covid19, you are eligible to take up to $100,000 from your retirement account(s) at any point during 2020, without penalty, and pay it back within 3 years. If you don’t intend to pay it back, you can spread the tax out over 3 years. This is a *significant* planning opportunity, so please talk with us prior to making any distributions/repayments.
  2. Required Minimum Distributions (RMDs) from IRAs have been waived for 2020. This applies to all flavors of IRAs (Inherited, SEPs, SIMPLEs) and company retirement plans (401(k)s, 403(b)s, 457s). Note that this only matters for people who had an RMD requirement previously, or who turn 72 this year.
    • If you need all or part of your RMD to cover your living expenses, don’t give this a second thought. Keep doing your thing.
    • If you’d normally save your RMD, or you have non-retirement assets that can cover your expenses, we recommend suspending any regularly scheduled withdrawals for the rest of the year.
    • If you’ve already taken your RMD in the last 60 days, you can return it.
    • If you’ve already taken your RMD but it was more than 60 days ago, bullet #1 may apply to you.
  3. This is a great time to consider converting some of your IRA/401(k) savings to a Roth.
    • If you don’t need your RMD, consider converting those funds to a Roth instead. Need help? Feel free to reach out to us anytime.
    • The main benefits of Roth IRAs, briefly:
      • No RMD requirement
      • No tax on growth or distributions (to withdraw earnings penalty-free, the Roth needs to have existed for at least 5 years)
      • Best asset to pass on to heirs, especially in light of the many changes to the tax code from the SECURE Act late last year
      • Reduces future RMDs on IRAs/401ks, and the associated taxes on those distributions
  4. If you are charitably inclined:
    • Normally we have to itemize our deductions to write-off charitable donations. But, for 2020, even if you choose the standard deduction, you can deduct $300 of charitable donations ($600 for joint filers).
    • Qualified Charitable Distributions (QCDs) are still allowed in 2020, though there is less of an immediate tax incentive. Please chat with us about whether or not it makes sense to continue with QCDs, or make gifts from non-retirement savings instead (cash or appreciated stock).
    • If you have money sitting in a Donor Advised Fund, please consider disbursing some of it now to local organizations on the front lines of the Covid19 crisis. We have a few favorites, and we’d love to hear yours! Please leave a comment and help spread the word about organizations doing great work right now.
The CARES Act has all kinds of provisions and implications beyond the few specific ideas for RMD strategies. This is really just the tip of the iceberg.
 
Please stay safe and know that we are here to help.

Sending virtual hugs from the whole Painted Porch Team!

Bird

6 Comments

  1. Diane

    Hi Brian, Thank you!

    Reply
  2. Johanna and Peter

    Thank you for the update on the effects of the CARES Act. While at this moment too many things are uncertain, your comments will come handy when we’ll see more light at the end of the tunnel.

    Reply
    • Megan van den Bergh

      Thanks Johanna and Peter! “Uncertain” seems like the theme of 2020, doesn’t it? We are optimistic overall, though we know it’s tough right now. Sending you hugs and the best possible wishes.

      Reply
  3. Andrea

    Hi Megan, Brian and team – this was both interesting and helpful so thank you. I’ve passed this along so that others can benefit from your knowledge and advice. Much appreciated!

    Reply
    • Megan van den Bergh

      Andrea, thanks for your comment! So glad to hear that. We’re trying to mix technical articles with broader life-related articles, so I’m happy you still found this one interesting. : )

      Reply

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