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Follower ○○○

RMD requirement suspended

In 2008 (or was it 2009?) after the market tumble, the requirement to take your RMD was cancelled for the year.  The reason was that taking a RMD, the amount of which was based on the high prices of investments on Jan 1,  would seriously drain those retirement accounts that had suddenly dropped to about 60% of their Jan 1 value by the end of the year.  It also had the effect of pumping more money into the economy.

What are the chances they will do the same this year?  I'm holding off making a withdrawal or QCD payment from my IRA until there is some clarification.  Thoughts?

27 Replies
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Contributor ○

Re: RMD requirement suspended

How does NOT taking an RMD pump more money into the economy?  I took mine on January 8th and am spending it.   I think the answer to your question will depend on what the market is doing in the late fall, when many take theirs.

 


@WillieB1 wrote:

In 2008 (or was it 2009?) after the market tumble, the requirement to take your RMD was cancelled for the year.  The reason was that taking a RMD, the amount of which was based on the high prices of investments on Jan 1,  would seriously drain those retirement accounts that had suddenly dropped to about 60% of their Jan 1 value by the end of the year.  It also had the effect of pumping more money into the economy.

What are the chances they will do the same this year?  I'm holding off making a withdrawal or QCD payment from my IRA until there is some clarification.  Thoughts?


 

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Valued Contributor

Re: RMD requirement suspended

There is nothing in the news on this.

But your OP subject title may mislead other readers to think something has been announced. 

BTW, I took my RMD already in early January.

YBB
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Follower ○○○

Re: RMD requirement suspended

You are right.  Careless writing on my part.  If I knew how to change the subject line or pull the message I would do so.  Sorry for the confusion.

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Participant ○

Re: RMD requirement suspended

If that were to happen, it would cause great complications for me and many others. In my case, however, I take RMD's from my TIAA 403b GRA on a monthly basis. And I use (mostly spend) that "paycheck." However, I draw the monthly cash for this RMD from my Money Market Account (MMA) in that GRA; the MMA holds approximately 2-years worth of prospective RMD in it.

My ongoing annual TPA of my TIAA Traditional holding -- the TPA (Transfer Payout Annuity) cashout is in its second of 10 years, with next transfer payout from Trad to my MMA in May -- accounts for about 30% of the cash currently in my MMA.

In sum, my TIAA RMD is only indirectly entangled with the stock market dive, at least over the short run (2 years).

In my Fidelity account, I took my 2020 RMD and paid taxes on my TIRA in February.

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Contributor ○

Re: RMD requirement suspended

Sen. Ed Markey (D-MA) has proposed legislation (S. 3527) which would do the following:

  • Suspend otherwise-required 2020 RMDs from qualified retirement plans, 403(b) plans, governmental 457(b) plans, and individual retirement arrangements (IRAs).
  • 2020 will be disregarded for purposes of the 5-year period for required depletion of an inherited IRA or retirement plan account, where the beneficiary was a qualifying designated beneficiary using the 5 year rule.
  • Mandatory withholding (e.g., 20%) would not be applied to 2020 amounts withdrawn from these retirement savings arrangements, exempt up to such amount(s) that would represent RMDs if not for the 2020 exemption.
  • Retirement plans may operationally comply with these provisions, but must amend for the changes by the last day of 2022 plan years (2023 plan years for governmental plans).
  • An individual’s required beginning date for RMDs (generally April 1 of the year after attainment of RMD age or, if later, the year of retirement) would not be altered by a 2020 suspension.

I can't determine if any of these provisions have been included in the CARES Act that is currently in negotiations. But a couple of things about the RMD holiday make no sense:

1. Not having to withdraw the RMD for the year has nothing to do with household cash flow...its has to do with the effect on the household's tax bill. The logic that the household has to sell some depressed stock/fund at the wrong time is silly. The stock/fund can simply be transferred in-kind to a taxable account with no disruption of allocation holdings.

2. The RMD holiday would benefit primarily the high net worth households and have no effect on households who are withdrawing the RMD amount each year anyway.

Sen. Markey also under another Senate Bill will propose Social Security benefits not be subject to taxation.

I've scanned through the proposed CARES Housebill and can't find anything on these

BruceM

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Contributor ○○○

Re: RMD requirement suspended

It should be called The Box of Chocolates Bill!  8-))

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Participant ○

Re: RMD requirement suspended

I like chocolate. I'd be delighted if my Social Security cash came to me tax free! But I'm already 5+ years into my RMD, and I "need" the money. However, I'd be delighted if they removed federal taxes on RMD's as well as Social Security.

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Valued Contributor

Re: RMD requirement suspended

Always take mine in early January. 

Bob

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Contributor ○

Re: RMD requirement suspended

Just finished a live telephonic townhall with our representatives here in Santa Clara County.  7000 citizens were on the phone.  Topic was for top doctor representative on COVID-19 but other questions were asked.  I recall one of the representatives saying the waiver of RMD AT 72 YEARS OLD is in the House bill.  But we have to wait and see what is finally agreed upon.  It seems to be a rather large bill.  The reason alluded to on the call is that retirees have had their retirement accounts slaughtered.  Why add more insult to injury by forcing further reduction?  If you have an issue with this, don't shoot me, I am just the messenger. 

EDIT:  Let me correct to what I recall.  

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Explorer ○○

Re: RMD requirement suspended

CNBC is reporting that both the Senate and House versions of the Covid-10 proposed legislation contain provisions to eliminate the requirement of RMDs for 2020. I am not able this moment to paste a link to this news story but if you search "Relief from Required Minimum Distributions for 2020" you'll probably find the CNBC story. 

In addition, I believe the Senate draft contains a provision allowing anybody with a 401k plan to take a harship distribution without any penalty  for being under age 59 1/2 (but subject to income tax. 

Everything is still subject to change before any final legislation is passed. 

 

You're very welcome.

 

 

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Participant ○

Re: RMD requirement suspended

Being allowed to stop taking an RMD in 2020 wouldn't be useful to me. I'd rather that instead they took away federal income tax on the RMD.

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Contributor ○

Re: RMD requirement suspended


@Juris2 wrote:

Being allowed to stop taking an RMD in 2020 wouldn't be useful to me. I'd rather that instead they took away federal income tax on the RMD.


I wouldn't hold my breath for that.  I do recall hearing today that in the House bill is a provision to allow younger people to tap retirement funds without penalty.  But presumably it would still be a taxable event.  We have to stay tuned on what is finally passed.  

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Valued Contributor

Re: RMD requirement suspended


@Retired1809 wrote:

CNBC is reporting that both the Senate and House versions of the Covid-10 proposed legislation contain provisions to eliminate the requirement of RMDs for 2020. I am not able this moment to paste a link to this news story but if you search "Relief from Required Minimum Distributions for 2020" you'll probably find the CNBC story. 

In addition, I believe the Senate draft contains a provision allowing anybody with a 401k plan to take a harship distribution without any penalty  for being under age 59 1/2 (but subject to income tax. 

Everything is still subject to change before any final legislation is passed. 

 

You're very welcome.

 

 


https://www.cnbc.com/2020/03/24/congress-may-let-you-skip-mandatory-withdrawals-from-ira-and-401ks.h...

https://www.barrons.com/articles/investors-could-get-retirement-plan-waivers-51585001152

 

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Contributor ○○○

Re: RMD requirement suspended

Let's hope it gets suspended for at least this year.

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Valued Contributor

Re: RMD requirement suspended

I suggested in another thread to continue RMD but reduce or skip tax on it.

YBB
Follower ○○

Re: RMD requirement suspended

We're still waiting for the final outcome on the next stimulus bill but, as of 3/25 it appears that the waiver is in both versions of the bill with encouraging signs of the Senate bill moving forward.

If the RMD is suspended for 2020 it will open a unique opportunity for those with other resources from which to provide their cash flow needs. If you are a  disciple of Christine Benz's bucket portfolios with your two year cash/equivalents outside of your IRA, this may be the year to double down on Roth conversions to reduce future RMD's. Since RMD's make up a sizable portion of my taxable income, elimination or drastically reducing the draw this year will allow for a larger Roth conversion. The conversion can occur without entry into a higher tax bracket and without piling on of IRMAA (income-related monthly adjustment amounts) to Medicare premiums. Of course, before going this route it will be necessary to evaluate current versus future tax liabilities.

 

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Contributor ○

Re: RMD requirement suspended

The House has passed the $2.2T COVID-19 relief package. Just finished reading Ed Slott's review on this bill's affect on RMDs (sorry, can't post a link as its a subscription site). But here are a couple of interesting provisions as relates to RMDs

  • The RMD suspension applies to both owned and inherited IRAs
  • Those whose first RMD was 2019, the year they reached 70.5 and who have delayed the RMD withdrawal to NLT April 1, 2020, the suspension of the RMD will also apply to them, so they will in effect get two years of RMD suspension. Cute!
  • Because there is no RMD, any amount withdrawn to meet the RMD may be put back into the IRA if within 60 days and the IRA owner did not use the 60-day rollover provision during the past 12 months. However, this does not apply to inherited IRAs. Once an inherited IRA RMD is out, it must remain out and cannot be put back.
  • If the RMD was taken earlier than 60 days ago, if the IRA owner was him/herself infected by COVID-19 or qualified for a household that has been COVID-19 affected, the RMD amount can be returned to the IRA over the next 3 years.

BruceM

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Valued Contributor

Re: RMD requirement suspended

From what @BruceM summarized for RMDs, it seems that those who took RMD in early January cannot take advantage of the CARES Act. Of well, I will stop thinking about it.

YBB
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Highlighted
Contributor ○○○

Re: RMD requirement suspended

Still vague to me. What about one like myself that takes RMDs monthly, can I take less than the required for the remainder of the year with penalty?

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