Retirement Account Distributions

In an attempt to ease the financial burden placed upon taxpayers by the COVID-19 crisis, one of the parameters of the CARES Act, has more or less, suspended Required Minimum Distributions (RMDs) for 2020 for all qualified retirement plans and IRAs. This can be a golden opportunity for some taxpayers. Every situation is different and the advantages and disadvantages need to be carefully evaluated before making this decision. The major advantage is continued tax-deferred income growth. However, one must consider the possibility that one could return the funds only to experience a drop in the market and lose the gains they have already “harvested” when the market was higher.

Waiver of 10% Early Distribution Penalty
The 10% early withdrawal penalty is waived for distributions on or after 1/1/2020 for coronavirus-related purposes. The distributions will be taxed over a 3-year period and the amount can be re-contributed to an eligible retirement plan during that time without regard to the contribution limits at that time. Also, loan limits from certain retirement plans are increased for coronavirus-related relief.

Qualified Charitable Distributions (QCD)
If you have reached the age where you must take a distribution from your IRA or retirement vehicle, did you know that you have the option to gift all or part of that annual distribution to the charity of your choice? This is called a Qualified Charitable Distribution (QCD) which is a direct transfer of funds from your IRA, payable to the qualified charity. QCDs can be counted toward satisfying your required minimum distributions (RMD) for the year. Unlike regular withdrawals from your IRA, QCDs exclude the amount donated from taxable income, which can reduce the impact to certain tax credits and deductions. Interested in a QCD for 2020 towards your current RMD? Funds must come out of your IRA and directed to charity no later than December 31, 2020. It’s easy to do-just fill out a designated beneficiary form through your plan administrator or speak with your financial advisor. Your gift goes straight to your charity of choice and you can know you are doing good in the world with these assets.

Questions? Contact one of our tax experts at (888) 388-1040.