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Congress may permit retirees to skip required minimum distributions from their retirement savings.
The House coronavirus relief bill, which was released yesterday, contains a provision that waives for 2020 the required minimum distributions from individual retirement accounts and workplace retirement plans.
A similar provision is in the latest version of the Senate bill.
“For people with a retirement account and who don’t need the money right now, it’s helpful,” said Garrett Watson, senior policy analyst at the Tax Foundation. “It’s interesting that this showed up in both versions; it shows some consensus.”
The House’s proposed legislation contains a range of additional relief measures, including permitting coronavirus-related withdrawals from retirement accounts and enhancing the earned income tax credit.
Historically, savers who are aged 70½ have had to take mandatory withdrawals from their retirement accounts every year. The distributions are required from each 401(k) account you hold, as well as any traditional IRAs you have.
Roth IRAs are exempt from RMDs, but Roth 401(k) investors must take the mandated withdrawals.
Starting in 2020, the Secure Act boosted the RMD age to 72 and over.
If it’s your first time taking this distribution, you generally have until April 1 of the following year to do so. But all subsequent RMDs must be taken by year-end.
If there was ever a good time to waive mandatory distributions, now would be it. Mandatory distributions are looking especially painful as major market indexes have been battered by volatility.
While this measure and others would allow savers to hold onto more of their savings, waiving the RMD for 2020 would work in favor of those who don’t need to live off of their IRA or 401(k) in retirement.
“The idea of pushing back the RMD is useful, but it would mostly benefit those who are still working or who are higher income,” said Jamie Hopkins, director of retirement research at Carson Group.
Indeed, individuals who are still working and saving in a workplace retirement plan are able to put off their RMD from the plan until they retire – provided they don’t own more than 5% of the company.
They still need to take RMDs from their IRAs.
More from Smart Tax Planning:
Tax Day is July 15. Why you should get your return in sooner
Congress may allow you to take $100,000 from your 401(k)
How those coronavirus-fueled losses can cut your taxes
