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Additional Resources

Recent change in RMD Rules for 2020

by PMA Investment Committee

To our valued clients,

We are writing to you again, since it is our goal during this difficult period to provide updates as important changes occur related to retirement planning, financial markets, or our operations. The primary purpose of this note is to provide information about important changes to rules relating to Required Minimum Distributions that became effective with the passage and signing of new stimulus legislation on March 27, 2020.

We could certainly understand if, in this environment, issues relating to your IRA and other retirement plans were far from your main concern.  Nevertheless, there were some developments in the recent stimulus bill that clients should be aware of and consider. In particular, the requirement to withdraw money from your individual retirement accounts has been waived for 2020. In other words, for the year 2020, no Required Minimum Distributions for IRA type of accounts need be taken. This is a significant, even if temporary, change from the general rules that have previously governed IRA accounts.

Accordingly, depending on your financial situation, you may want to take certain actions. For example, while we understand that many people rely on these RMD distributions for living expenses, those who do not – because they have other sources of income, or other assets on which to draw – may find it advantageous not to take distributions this year. We generally feel that people who can draw on other assets for spending needs are, on the whole, better off deferring this distribution, as doing so will result in a reduction in taxable income for the year, while giving this money another year to compound tax free. These considerations would also apply to clients who have set up periodic withdrawal plans from IRA accounts.

It is also important to note that if you have taken an IRA distribution in the last 60 days, you can “reverse” that distribution by rolling it back into your IRA.  You may also roll over a 401(k) distribution into an IRA, but not back into the 401(k). As noted above, this must be done within 60 days of the date that the distribution was received, and only one such “rollover” is permitted per calendar year.  Of course, if you have already taken some or all of your RMD this year and do not wish to reconsider doing so, there is nothing whatsoever wrong with such a decision. You may continue with periodic distributions from your IRA if doing so makes the most sense for you. No one should second guess him or herself for failing to anticipate the unprecedented circumstances we are now in and the sweeping change Congress just enacted to RMD rules for the year 2020.

Ultimately, because all of the matters in this note relate to recent changes to legal rules, changes that are still being interpreted and for which governmental guidance is still being provided, the application of these new rules to any individual’s circumstance should be reviewed with a qualified legal or tax professional.

Another significant change, of which you likely are aware, is that the deadline to file and pay your federal 2019 taxes has been extended by three months to July 15, 2020 (many state and local tax dates were extended also but these rules are determined by each such jurisdiction).

There are other changes in effect as well, perhaps not as significant for most of PMA clients, but still worth mentioning: (1) savers may take “coronavirus-related distributions” of up to $100,000 from their individual retirement accounts and certain other retirement plans (such as 401(k)s) without the 10% penalty that normally applies to people under age 59½; and (2) the maximum size of loans against retirement plans has been doubled to $100,000, along with a relaxation of the maximum loan to value ratio.

As to investment matters, PMA strategist Dr. Craig MacKinlay is preparing an April cover letter which addresses recent developments and their implications for the economy and equity and fixed income markets, as well as discussing the significant continuing market volatility.

While these are extraordinary and difficult times, everyone at PMA continues to work cooperatively and as a team on your behalf. As set forth in one of our prior messages, the fundamental long-term bet made by PMA is, ultimately, on America itself, a bet that we continue to believe in.