The CARES Act: A quick primer on RMDs

By now, many of your clients have heard about the COVID-19 relief bill that was signed into law in late March. The Coronavirus Aid, Relief and Economic Security Act, also known as the CARES Act, is a $2 trillion dollar package that provides financial assistance to eligible taxpayers and businesses affected by the latest pandemic. As an advisor, it's important to know how it can impact your clients and prospects - and even your own practice.

One major aspect of the CARES Act is that it suspends in 2020 required minimum distributions (RMDs) from defined contribution plans, such as 401(k)s, 403(b)s, 457(b) plans, and traditional IRAs. This has raised some questions for those who already took distributions in 2020. If you have clients who have taken an RMD this year, they cannot repay the amount back into the same account. According to Forbes contributor Jaime Hopkins, they can, however, take advantage of a 60-day grace period and roll the RMD into a new IRA. This allows them to avoid paying income tax on the RMD.

CARES Act does not affect these types of accounts.

Another question is if the CARES Act does not affect these types of accounts. If you remember the SECURE Act, which was signed into law in late 2019, the bill put into place a 10-year distribution rule for non-spousal beneficiaries of inherited IRAs and 401(k)s. Before the SECURE Act, beneficiaries could extend distributions over their lifetime. But now, with the SECURE Act, beneficiaries must take distributions over a 10-year period. So what happens if someone died in 2020 and wanted to leave their IRA to their adult niece? The 10-year period begins in the year after the year of the retirement account owner's death. In this example, the beneficiary would begin taking distributions in 2021, giving her 11 years to withdraw whole account.

But what if the original owner's account was already subject to RMDs? Would the beneficiary still have to take a distribution during the year of death as if the owner was still alive? Typically, one would have to take the distribution. But in 2020, as a result of the CARES Act, the beneficiary is not required to take an RMD.

We'll continue to provide information about the CARES Act and how it can potentially impact your clients and your business. Stay tuned, but in the meantime, get access to our CARES Act marketing mini-package.

SOURCE: Jamie Hopkins, Forbes, March 30, 2020,