The CARES Act and your 2020 RMD

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act
(“CARES Act”) was signed into law. The CARES Act includes many provisions to help manage the financial consequences related to the employment disruption and market volatility created by the coronavirus pandemic. One of those provisions waives required minimum distributions (RMDs) from retirement plans and IRAs (including inherited plans and IRAs) for 2020. Many clients have questions with respect to how this may impact their planning:

What if I have already taken part of my 2020 RMD?

If you have already withdrawn all or a portion of your 2020 RMD, you may have the option to return that money. Typically when you receive a distribution, you would have 60 days to redeposit those funds. However, this year, you will have until August 31 to repay any distributions. 1

How do I make a repayment?

This depends on the type of account that the RMD was taken from. RMDs from an employer plan may be rolled into an IRA or back to your employer plan, if the plan permits. RMDs from an IRA can be returned to that IRA or, if your plan permits, to your employer plan. Your TIAA advisor can help to you understand your options.

What about inherited IRA distributions?

Typically, non-spouse beneficiaries are not permitted to roll distributions from inherited IRAs back into the plan, but this year those amounts can be returned. 2

Can I deposit those monies into a Roth account?

Yes, you can convert your traditional distributions to a Roth account. To do so, you will recognize the amount converted as taxable income. This might be a particularly attractive year to consider Roth conversions. You may have lower income because of either a reduction in earned income or the elimination of 2020 RMDs. There have also been volatile market conditions, and in December the SECURE Act impacted the way in which beneficiaries withdraw inherited retirement assets. Your TIAA advisor can help you determine if a Roth conversion is right for you. And remember, because the amount converted will be taxed, be sure to speak with your accountant. You can learn more about Roth accounts here.

What happens to tax withheld from my RMD?

If state or federal income tax was withheld from your RMD, you will have to make that amount up when returning the RMD. If not, that amount will be considered a taxable distribution. When you file your 2020 income tax, any amounts withheld will be reported on your income tax return and will go toward your 2020 liability. If you are due a refund, you would receive it when you file your 2020 return in 2021.

Can I still use my IRA to make charitable gifts?

While you may still use your IRA for a Qualified Charitable Distribution (QCD), other charitable giving strategies may be more effective for reducing your income tax liability this year. One of the main benefits of a QCD is that it offsets taxable income from RMDs. Because RMDs are not required in 2020, there is no required taxable income to offset. The CARES Act allows a $300 above-the-line deduction for cash gifts to charity and eliminates AGI (adjusted gross income) deductibility limitations for cash gifts to charity. If you are charitably inclined, there are some very unique opportunities this year. Your TIAA advisor can help you consider which charitable giving strategy might make the most sense for you.


What should I do next?

Act fast! If you wish to return any RMDs taken in 2020, you must do so before August 31. Your TIAA advisor can help you consider your options. Be sure to contact your accountant or tax advisor before taking any action.

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1https://www.irs.gov/pub/irs-drop/n-20-51.pdf. The distribution must have been one that would have been an RMD but for the CARES Act waiver of 2020 RMDs. 
2Previously received RMD amounts from an inherited IRA can be returned to the same IRA by the August 31 deadline.
This material is for informational or educational purposes only and does not constitute fiduciary investment advice under ERISA, a securities recommendation under all securities laws, or an insurance product recommendation under state insurance laws or regulations. This material does not take into account any specific objectives or circumstances of any particular investor, or suggest any specific course of action. Investment decisions should be made based on the investor’s own objectives and circumstances.
Advisory services are provided by Advice & Planning Services, a division of TIAA-CREF Individual & Institutional Services, LLC, a registered investment adviser.