What the CARES Act means for you

RMDs waived for 2020

The CARES Act includes a temporary waiver for both:

• 2020 required minimum distributions (RMDs), including ones from IRAs, inherited IRAs, and employer-sponsored plans such as 401(k) plans.
• 2019 RMDs due by April 1, 2020, for individuals who turned 70½ last year and didn’t take the RMD before January 1, 2020.

Here are some important details if you’re looking to stop your automatic RMDs or “roll back” an RMD you already took.

How to suspend your automatic RMD

If you’re scheduled to take your distribution automatically through our RMD Service, you can cancel any remaining distributions for 2020 at vanguard.com by following these steps. Note: Personal Advisor clients are unable to edit RMDs online and need to work with their advisor to take action.

1. Log on to your account.
2. From the menu, choose My Accounts and select Retirement contributions, distributions & RMDs.
3. Under Retirement summary, choose Required minimum distribution (RMD).
4. Depending on your account type, select either Change RMD service option or Delete.
5. If you chose Change RMD service option, select the Calculation only method on the next page. Or if you chose Delete, just choose Submit on the next page.
6. Reactivate your RMD in 2021.

Important consideration for 2021: If you cancel an automatic distribution this year, you’ll have to reactivate it in 2021 to help ensure you take your full RMD for next year. Reactivating your RMD for next year will ensure you’re not subject to the usual 50{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} penalty that applies to any RMD amount that’s not distributed. If you’d like to cancel your RMDs this year but automatically restart them in 2021, call us at 877-662-7447 Monday through Friday from 8 a.m. to 8 p.m., Eastern time. We’d be happy to help you or answer any questions you may have.

Rolling back an RMD

If you’ve already taken RMDs in 2020, you may be able to roll them back to an IRA or employer-sponsored plan (if the plan permits).

Rollovers are generally required to be made within 60 days of the distribution, but the IRS has extended the 60-day rollover deadline to July 15, 2020, for distributions, including RMDs, for which the 60-day rollover deadline would’ve fallen between April 1, 2020, and July 15, 2020. As a result of this extension, individuals who received an RMD between February 1, 2020, and May 15, 2020, likely have until July 15, 2020, to complete the rollover. If you took a January distribution, unfortunately it doesn’t fall within the extended rollover window. Keep in mind that:

• Distributions from IRAs are also subject to 1 rollover per 365 days. You can find more information about rollover rules at irs.gov.
• IRS rules don’t permit distributions from inherited IRAs to be rolled over.
• The IRS may issue additional rollover guidance in the future.

If you’d like to roll back an RMD to an IRA, follow these steps. Step 2 includes instructions to specify if this is a rollover.

Flexible distribution from retirement accounts

Under the CARES Act, investors affected by the coronavirus may be able to take distributions in 2020 of up to $100,000 from an IRA or employer-sponsored plan. These distributions won’t be subject to the normal 10{f08ff3a0ad7db12f5b424ba38f473ff67b97b420df338baa81683bbacd458fca} early withdrawal penalty. Additionally, the income tax due on those distributions can be spread over 3 years, and investors have the option to return some or all of the funds to an IRA or another retirement plan within 3 years. The $100,000 maximum is an aggregate amount per investor, against all retirement accounts.  

You may be eligible to take a distribution if:

• You, your spouse, or your dependent is diagnosed with COVID-19.
• You experience adverse financial consequences due to COVID-19 as a result of furlough, layoff, reduction in work hours, inability to work due to lack of child care, closing/reduced hours of the business you own or operate, or other reasons identified by the Treasury.

Roth IRA conversions and distributions

In addition to the above CARES Act provisions, you may be considering a Roth IRA conversion to take advantage of lower income and lower taxes in 2020. While current market volatility makes it nearly impossible to know the best time to convert, doing so when your retirement account values are down may lessen the tax impact of the conversion.  

Since the CARES Act allows you to skip RMDs for 2020, you can convert assets from a traditional IRA to a Roth IRA this year without first satisfying the typically required RMD. See this article for more details and considerations to find out if a Roth conversion makes sense for you. Keep in mind that converted assets can’t be reversed or recharacterized at a later time.

If you already have a Roth IRA and need access to the funds, you can withdraw contributions anytime without paying taxes since the contributions were made on an after-tax basis. This is a standard benefit of the Roth IRA and not an added relief option associated with the CARES Act.

We’re here to help you every step of the way. If you’re a Personal Advisor client and would like to discuss your options, please log on to your Vanguard account and schedule an appointment.