Required Minimum Distributions (RMDs) are the annual withdrawals you must take from your individual retirement account and 401(k) plans after you reach age 72 (or age 70 ½ if you turned 70 ½ prior to January 1, 2020). The CARES Act, the coronavirus relief act that took effect this spring, allowed retirement account holders to bypass required minimum distributions for 2020. Those that inherited IRAs are also allowed to skip the RMD this year. (https://www.irs.gov/pub/irs-drop/n-20-51.pdf)
For those of you who have taken a Required Minimum Distribution (RMD) from your retirement savings at some point in the year, the clock is ticking for you to put that money back. If you already took the money out, you have until August 31st to put it back. However, you shouldn’t wait much longer than August 20th, as there are several steps and contacts involved in the process. In order to avoid any errors in the transaction, it is advised to return any RMD funds as soon as possible. It’s important to note that this RMD waiver only qualifies for 2020, meaning next year you’ll be required to take your distribution as per usual.
RMDs from traditional IRAs and 401(k) plans are subject to income taxes, so waiving the distribution or returning the funds could help you save on levies. But, make sure to give back the income taxes your custodian may have withheld, not just the net amount you may have received.
In other cases, some retirees opt to split their annual RMDs into 12 monthly disbursements, which means they have to return their monthly RMDs. In this scenario, you may have taken multiple distributions over the course of the year. Therefore, you’ll have to contact your custodian and have them hold the payments for the remainder of the year. You are allowed to replace the payments you have already received, too, but just ensure you cover the taxes withheld and act quickly.
Lastly, since the tax rules changed so rapidly this spring amid the coronavirus pandemic, savers should ensure that their custodians are marking the transaction as a “return of funds” and not a “contribution”, where you’d essentially be getting additionally taxed.
Make sure to talk with your custodian to see if you are squared away and eligible to return your mandatory distribution for the year. If you have any questions or concerns about your RMDs, please reach out to us at email@example.com and we’d be happy to assist you in any way.