CARES Act RMD Relief for 2020

Posted On March 30, 2020 By Scott Stratton, CFP(R), CFA In College Savings, Financial Planning, Tax Strategies /

The Coronavirus Aid, Relief, and Economic Security CARES Act approved this weekend eliminates Required Minimum Distributions from retirement accounts for 2020. If you have an inherited IRA, also known as a Stretch or Beneficiary IRA, there is also no RMD for this year. We are going dive into ideas from the CARES Act RMD changes and also look at its impact on charitable giving rules.

Of course, you can still take any distribution that you want from your retirement account and pay the usual taxes. Additionally, people who take a premature distribution from their IRA this year will not have to pay a 10% penalty. And they will be able to spread that income over three years.

RMDs for 2020

Many of my clients have already begun taking their RMDs for 2020. (No one would have anticipated the RMD requirement would be waived!) Can you reverse a distribution that already occurred? Not always. However, using the 60-day rollover rule, you can put back any IRA distribution within 60 days.

If you had taxes withheld, we cannot get those back from the IRS until next year. However, you can put back the full amount of your original distribution using your cash and undo the taxable distribution. You can only do one 60-day rollover per year.

For distributions in February and March, we still have time to put those distributions back if you don’t need them. Be sure to also cancel any upcoming automatic distributions if you do not need them for 2020.

If you are in a low tax bracket this year, it may still make sense to take the distribution. Especially if you think you might be in a higher tax bracket in future years. An intriguing option this year is to do a Roth Conversion instead of the RMD. With no RMD, and stocks down in value, it seems like a ideal year to consider a Conversion. Once in the Roth, the money will grow tax-free, reducing your future RMDs from what is left in your Traditional IRA. We always prefer tax-free to tax-deferred.

Charitable Giving under the CARES Act

Congress also thought about how to help charities this year. Although RMDs are waived for 2020, you can still do Qualified Charitable Distributions (QCDs) from your IRA. And for everyone who does not itemize in 2020: You can take up to $300 as an above-the-line deduction for a charitable contribution.

Also part of the CARES Act: the 50% limit on cash contributions is suspended for 2020. This means you could donate up to 100% of your income for the year. This is a great opportunity to establish a Donor Advised Fund, if significant charitable giving is a goal.

Above the $300 amount, most people don’t have enough itemized deductions to get a tax benefit from their donations. Do a QCD. The QCD lets you make donations with pre-tax money. Of course, you could do zero charitable donations in 2020 and then resume in 2021 when the QCD will count towards your next RMD. But I’m sure your charities have great needs for 2020 and are hoping you don’t skip this year.

The Government was willing to forgo RMDs this year to help investors who are suffering large drops in their accounts. To have to sell now and take a distribution is painful. However, if you already took a distribution, you are not required to spend it. You can invest that money right back into a taxable account. In a taxable account, the future growth could receive long-term capital gains status versus ordinary income in an IRA. I’ll be reaching out to my clients this week to explain the 2020 CARES Act RMD rules. Feel free to email me if you’d like our help.

Can You Reduce Required Minimum Distributions? (Updated for 2026)

Posted On June 25, 2017 By Scott Stratton, CFP(R), CFA In Retirement Planning, Tax Strategies / 1 Comment

Required Minimum Distributions (RMDs) are withdrawals the IRS mandates from most traditional retirement accounts once you reach a certain age — and those ages are changing under current law. This article explains when RMDs begin in 2026, how they are calculated, and practical ways to reduce the tax impact of RMDs as part of a broader retirement income plan.

What Are RMDs and When Do They Begin in 2026?

An RMD is the minimum amount the IRS requires you to withdraw from eligible retirement accounts each year once you reach a specified age. These withdrawals are generally taxable as ordinary income.

Under current law:

Age 73: You must begin RMDs if you are born between 1951 and 1959.
Age 75: You will begin RMDs if you are born in 1960 or later, with this rule in effect starting in 2033.

The first RMD is due by April 1 of the year after you reach the applicable age. After that, all RMDs must be taken by December 31 each year. However, I recommend you do not delay your first RMD until the following year as it will require to take two (taxable) distributions in the same tax year.

Important Notes

RMDs apply to traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k)s, 403(b)s, and other defined contribution plans.
You can withdraw more than the minimum in any year.
Roth IRAs do not require RMDs during the account owner’s lifetime, though beneficiaries must take distributions after the owner’s death.

Required Minimum Distributions often force income at inconvenient times, which is why they should be addressed within a comprehensive retirement income planning strategy rather than reactively each year.

Can You Avoid RMDs?

No — once you reach the age where RMDs begin, you generally must take them. However, there are a handful of legitimate strategies to reduce their impact on your taxes and retirement planning. Reducing future RMDs often requires coordinated Roth conversion planning.

Reducing RMDs is rarely about a single tactic. It requires coordinated decisions around Roth conversions, charitable giving, and income timing as part of an overall tax planning for retirees approach.

Strategy 1: Use Qualified Charitable Distributions (QCDs)

Qualified Charitable Distributions (QCDs) allow you to give up to $105,000 per year directly from your IRA to a qualified charity, and the donated amount counts toward your RMD without adding to taxable income.

This means:

Your RMD requirement is satisfied
Your taxable income is lower
You remain in potentially lower tax brackets

QCDs are especially useful for retirees who are charitably inclined and want to lower adjusted gross income (AGI) for Medicare, taxation of Social Security benefits, or subsidy eligibility such as ACA planning. (See also: Using the ACA to Retire Early) You do not have to itemize your tax return to benefit from a QCD.

Strategy 2: Roth Conversions Before RMD Age

A Roth conversion means paying tax now to move money from a traditional IRA to a Roth IRA — and Roth IRAs do not have RMDs during your lifetime.

Benefits:

Decreases future RMD amounts
Reduces future taxable income
Provides tax-free income later

Roth conversions work best in years when your taxable income is lower than usual or before RMDs begin. This strategy is one core reason many retirees coordinate Roth conversions with Social Security timing and other planning moves. (See: Roth Conversions After 60) Converting assets during a Bear Market, when their value may be temporarily lower, is a very effective strategy.

Strategy 3: Qualified Longevity Annuity Contracts (QLACs)

A QLAC is a deferred annuity that allows you to remove a portion of your traditional IRA from RMD calculations while deferring income until a later age (as late as 85).

Key points:

The amount invested in a QLAC is excluded from your IRA balance when calculating RMDs.
Payouts begin at a future date you choose.
QLACs can be effective for mitigating large RMDs during certain years.

Strategy 4: Still Working Exception With Employer Plans

If you are over the RMD age but still working, and not a 5% owner of the business, you might be able to delay RMDs from your current employer’s retirement plan (e.g., 401(k)), though this exception does not apply to IRAs.

This can provide additional flexibility in managing your income and taxable distributions. Ask your 401(k) if they can allow you to roll your IRA into your 401(k).

Strategy 5: Asset Location

Placing bonds in your IRA will also benefit because it will keep your IRA from having high growth. Otherwise, if your IRA grows by 20%, your RMDs will grow by 20%.

It is more tax efficient to keep growth stocks and ETFs in a taxable account and your bonds in an IRA. This allows you to receive favorable long-term capital gains treatment (0%, 15%, or 20%) for stocks, a tax benefit which is lost in an IRA. Lastly, if you hold the stocks for life, your heirs may receive a step-up in basis, which they will not in an IRA.

How RMDs Are Calculated

The IRS calculates RMDs using your retirement account balance at the end of the prior year divided by a life expectancy factor from the IRS tables. IRS

If you have multiple traditional IRA accounts, the IRS lets you aggregate your RMDs — calculate each separately, then take the total from any one or combination of traditional IRAs. However, RMDs from 401(k)s generally cannot be aggregated with IRAs.

What Happens if You Miss an RMD

If you fail to take your RMD or do not take enough, the IRS may impose a penalty. Previous penalties were 50% of the amount not withdrawn, but under later interpretation and relief provisions, a 25% excise tax may apply, reduced to 10% if corrected within two years using Form 5329. IRS

Recent IRS reminders underline the importance of meeting deadlines and taking RMDs accurately to avoid costly penalties.

How RMD Planning Fits Into Retirement Income Strategy

RMDs are just one piece of a larger retirement income plan. Thoughtful planning should consider:

Social Security timing (See: Social Security: It Pays to Wait)
Roth conversions before RMD age, especially if you are in the 12% tax bracket.
Qualified Charitable Distributions
Tax bracket management and Medicare IRMAA
Sequence of returns risk and withdrawal sequencing

For many retirees with $500,000–$5 million in investable assets, reducing the tax impact of RMDs can meaningfully improve their retirement cash flow and legacy goals. This topic is often part of a broader retirement or tax planning conversation. If you’d like help applying these ideas to your own situation, you can request an introductory conversation here.

Frequently Asked Questions

What age do RMDs start in 2026?
Most people are required to begin RMDs at age 73 if born in 1951–1959. For individuals born in 1960 or later, the RMD age will rise to 75 starting in 2033. Congress.gov

Can I avoid RMDs entirely?
No, you cannot avoid RMDs once you reach the required age, but strategies like Roth conversions, QCDs, QLACs, and delaying employer plan RMDs while working can reduce the tax impact.

Do Roth IRAs have RMDs?
No — Roth IRAs do not require RMDs during the account owner’s lifetime, making conversions a valuable planning tool.

5 Tax Savings Strategies for RMDs

Posted On November 3, 2014 By Admin In Retirement Planning /

In November each year, we remind investors over age 70 1/2 to make sure they have taken their Required Minimum Distribution (RMD) from their retirement accounts before the end of the year. If an investor does not need money from their IRAs, the distribution is often an unwanted taxable event. Although we can’t do much about the RMD itself, we can find ways to reduce their taxes overall.

Clients who have after-tax contributions to retirement accounts often ask about which account they should take their RMDs, but it doesn’t matter. The IRS considers IRA distributions to be pro-rata from all sources, regardless of the actual account you use to make the distribution. Whichever account you use to take the RMD, the tax due is going to be the same.

If all your contributions were pre-tax, your basis in all accounts is zero and you can ignore the comments above. Note that you do not have to take a distribution from each individual account, even though each custodian is likely to send you calculations and reminders about your RMD for that account. All that matters is that your total distribution meets or exceeds the RMD for all accounts each year.

For investors taking RMDs, here are 5 steps you can take to reduce your income taxes:

1) Asset Location. Avoid generating taxable income in your taxable accounts by moving taxable bonds, REITs, and other income generating investments to your retirement account. This will keep the income from the investments out of a taxable account, leaving your RMD as your primary or only taxable event. Placing stable, income investments in your IRA will also be a benefit because it will keep your IRA from having high growth. Otherwise, if your IRA grows by 20%, your RMDs will grow by 20%. (Actually more than 20%, since the percentage requirement increases each year with age).

Keeping stocks and ETFs in a taxable account allows you to choose when you want to harvest those gains and also allows you to receive favorable long-term capital gains treatment (15% or 20%), a tax benefit which is lost if those positions are held in an IRA. Lastly, if you hold the stocks for life, your heirs may receive a step-up in basis, which is yet another reason to hold stocks in a taxable account and not your retirement account.

2) Charitable Donations. If you itemize your tax return and are looking for more deductions, consider increasing your charitable donations. And instead of giving a cash donation, donate shares of a highly appreciated stock or mutual fund and you will get both the charitable donation and you’ll avoid paying capital gains on the position later.

3) Stuff your deductions into one year. Many investors in their 70’s have paid off their mortgage and it is often a “wash” between taking the standard deduction versus itemizing. If this is the case, consider alternating years between taking the standard deduction and itemized deductions. In the year you itemize, make two years of charitable donations and property taxes. How do you do this? Pay your property tax in January and the next one in December and you have put both payments into one tax year. Do the same for your charitable contributions. The following year, you will have few deductions to itemize and will take the standard deduction instead.

4) Harvest losses. Investors are often reluctant to sell their losers, but selectively harvesting losses can save money at tax time. Besides offsetting any capital gains, losses can be applied against ordinary income of up to $3,000 a year, and any leftover losses carry forward indefinitely.

5) Roth IRA. If you don’t need your RMD because you are still working, consider funding a Roth IRA. There is no age limit on a Roth IRA, so as long as you have earned income, you are eligible to contribute $6,500 per year. If you qualify for a Roth, then your spouse would also be eligible to fund a Roth, even if he or she is not working. Although the Roth is not tax deductible, the contribution does enable you to put money into a tax-free account, which will benefit you, your spouse, or your heirs in the future.

There is a “five year rule” which requires you to have a Roth open for five years before you can take tax-free withdrawals. This rule applies even after age 59 1/2, so bear that in mind if you are establishing a Roth for the first time.

One additional suggestion: although you have until April 1 of the year after you turn 70 1/2 to take your first RMD, waiting until then will require you to have to take two RMDs in that year. It may be preferable to take your first RMD in the year you turn 70 1/2, by December 31.