This year is like no other for RMD (Required Minimum Distribution) recipients, and boy, is it confusing!
UNDO YOUR 2020 RMD
The CARES Act suspended the rules for 2020. New guidance just came out that liberalized the rules even more. IRS issued Notice 20-23 allowing those who had received an RMD between February 1 and May 15, 2020 to roll over the RMD into a plan or IRA by July 15 without owing any tax. The usual 60-day rule for rollovers was waived.
NOW IRS Notice 2020-51 allows tax free rollovers for RMDs received in January and waives the one-a-year limit for IRAs. All you have to do is complete the rollover by August 31.
If you don’t currently need the money, you will benefit from more tax deferred compounding by replacing or not taking the RMD for 2020.
If you are subject to increased Medicare premiums this could be a strategy to consider.
ROTH IRA CONVERSION
Because of the financial downturn, this may be a year to convert your traditional IRA to a Roth IRA. If you are eligible for a coronavirus-related distribution you can convert up to $100,000 of your traditional Roth and take advantage of the three-year spread of the taxable income.
If there is one thing that we’ve picked up on over the last four months, it’s that you need to be on your toes. In the immortal lyrics of Rush’s Tom Sawyer, “No changes are permanent, but change is.” If (and when) anything changes, we’ll be here, letting you know.