Page 30 - BusinessWest August 3, 2020

A Primer on RMDs
SECURE Act Changes Rules on Required Minimum Distributions
WBy Bob Suprenant, CPA, MST
ith all that’s happened in the world this
year, the SECURE Act, signed into law
on Dec. 20, 2019, seems to have been robbed of the celebration it deserves.
Let’s give it its due and weave our way through the 2020 rules for what are known as RMDs.
First, what is an RMD, or required minimum dis- tribution? It’s the minimum amount you must take out of your retirement plan — 401(k), IRA, 403(b), etc. — once you reach a certain age. The theory is that the amount in your retirement plan will be liquidated as you age.
To calculate the RMD, as a general rule, you divide the balance in your account at the end of the previ- ous year — for this year, it would be Dec. 31, 2019
— by the distribution period found in the Uniform Lifetime Table. These tables currently run through age 115. Seriously.
Who Must Take an RMD?
This is where we blow the party horns and throw the confetti. These rules changed on Dec. 20, 2019. If you reached age 701⁄2 in 2019, you were required to take your first distribution by April 1, 2020. If you reach age 701⁄2 in 2020, you are not required to take your first distribution until April 1, 2022.
At the risk of putting a wet blanket on the fun, if you do not take the full amount of your RMD and/
or you do not take it by the applicable deadline, there is a penalty. The penalty is an additional tax of 50% of the deficiency. The additional tax can be waived if due to reasonable error and you take steps to remedy the shortfall.
Did COVID-19 Change This?
Yes, the CARES Act, which was signed into law on March 27, 2020, included provisions that waived the requirement for RMDs in 2020. This also
happened in 2009 when the stock market
crashed. In 2020, RMDs are not required. The RMD waiver also applies to inherited IRAs.
It keeps getting better. On June 23, 2020, the IRS released Notice 2020-51, which allows those who have taken an RMD in 2020, but wish they hadn’t, to return the money to the retirement plan by Aug. 31.
There is a bit of a catch here, though.
Most who take RMDs have federal and
state tax withholdings on their distributions. Under this relief, the entire distribution must be returned to the retirement plan, not the distribution net of taxes.
By way of example, if you have a gross RMD
of $20,000 and there is $3,000 in federal and state withholding, your net distribution is $17,000. To have none of your RMD taxed, the $20,000 must be
returned to the retirement plan by Aug. 31. If you return only $17,000, you will be taxed on a $3,000 distribution.
Do I Take an RMD In 2020?
I know I don’t need to take an RMD in 2020, but should I? The answer is ... it depends. And you should consult your tax advisor. Ask this individual to run projections to see what the best amount is for you
“
take an RMD in 2020, but should I? The answer is ...
”
For many of my clients, I try to take full advan-
RMDs
Continued on page 31
I know I don’t need to
it depends.
to take as a distribution. For married joint filers, the 12% federal tax bracket includes taxable income up to $79,000. For amounts over $79,000, the tax bracket is at least 22%, a full 10% increase.
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