If You’ve Taken a Required Minimum Distribution (RMD) This Year – an Important Deadline is Looming
If you took required minimum distributions from your retirement accounts this year and would like to return the money, you can.
You don’t have much time left, however, to put the cash back. You must recontribute to your retirement account by August 31, 2020.
The COVID-19 pandemic and subsequent market fallout triggered this extraordinary waiver. The IRS announced in June that everyone who had already taken withdrawals in 2020 may return that money by the end of August if they wish.
In March, President Trump signed the CARES Act, which among many other provisions, allows Americans in 2020 to skip taking out their required minimum distributions from their tax-deferred retirement accounts, such as 401(k)s and Individual Retirement Accounts, because of the public health crisis. Before President Trump signed the legislation, some retirees had already taken their distributions.
While many retirees depend upon distributions from their retirement accounts to fund their living needs, not everyone does. Some would have preferred to keep the money invested in their accounts for a subsequent market recovery and continued tax-deferred growth. RMDs are taxed as ordinary income, which means that the withdrawals will be added to your taxable income each year. Individuals who decide to return their RMD withdrawals can recontribute to the original account or another tax-deferred account.
The IRS announcement can also be beneficial to Americans who inherited an IRA or other retirement account and took an RMD this year. These individuals can also return the distribution.
We encourage you to discuss the logistics of this process with your financial advisor.