Navigating the CARES and SECURE Act IRA Distribution Rule Changes for 2020 and Beyond

In addition to the various forms of relief aid to individuals and businesses, the nearly $2 trillion Coronavirus Aid, Relief and Economic Security (CARES) Act also modified IRA distribution rules for 2020. This was passed on the heels of the Setting Every Community Up for Retirement (SECURE) Act which also made changes to IRA distribution rules.  Since the combination of rule changes impact both retirement account owners and beneficiaries, many Americans have been left confused about the implications for their own financial planning.

RMDs waived for 2020

Required minimum distributions or RMDs, are distributions that must be withdrawn from certain pre-tax retirement accounts annually.  Prior to the SECURE Act, RMDs needed to be taken once you reach age 70 1/2.  The SECURE Act that was signed into law before the recent COVID-19 outbreak raised the RMD age to 72 for anyone who turns 70 ½ after December 31, 2019.  With future RMDs starting at age of 72, taxpayers have a little more time to allow their account to grow tax deferred before being forced to begin distributions.

With that said, the new CARES Act allows savers who were supposed to take an RMD in 2020 to skip their distribution altogether.  This applies to defined contribution plans that include traditional IRAs, 401(k)s, 403(b)s and profit-sharing plans.

Why did the government make this change?  Well, when it comes to investing, we know it is generally not a good idea to sell low.  Being forced to take RMDs during periods of extreme market volatility can compound losses for taxpayers and the CARES Act gives those subject to RMDs a break from having to take distributions for one year.  In other words, if your portfolio is down, the government doesn’t want you to be forced to sell.  It is important to note that you do not have to take two distributions next year – you simply are able to skip a year.

What about inherited IRA accounts?

The SECURE Act made major changes to RMDs for inherited IRAs too.  Specifically, the ability to “stretch” an IRA and maintain tax deferred growth over the beneficiary’s lifetime is no longer available.  Instead, beneficiaries that inherit an IRA in 2020 and beyond are forced to draw down the inherited IRA by the end of 10 years.

While inherited RMD rules have changed to the 10-year distribution requirement, like other retirement account holders, inherited IRA account holders can also skip their distributions for 2020.

What if you never took your first RMD in 2019?

The first year that you take RMDs, you have the ability to defer the very first RMD until April of the following tax year and then take two RMDs in that year.  For example, a taxpayer that turned 70 ½ in 2019 decides to postpone their first RMD for 2019 until April of 2020.  Under normal circumstances, this taxpayer would have to take the 2019 RMD by April 1 of 2020 and then take another RMD by the end of 2020.  The CARES Act actually allows taxpayers in this situation to waive their first two RMDs – the April 1st RMD and the year-end 2020 RMD.


What to do if you already took your 2020 RMD

IRA rules may allow taxpayers to redeposit withdrawals back into an IRA as long as it is done within 60 days and you haven’t already made a rollover from one IRA to another in the last twelve months.  This means that taxpayers that have taken distributions within the last 60 days are offered a “mulligan” and can put the funds back.  Keep in mind, you will have to replace any taxes that were withheld from the distribution and wait until you file your tax return next year to get those funds back. Unfortunately, if your RMD was made longer than 60 days ago, you do have the option to undo the RMD.

Remember, due to existing IRA rules, Inherited IRA account distributions are unable to be returned at this time.

What should you do?

For many taxpayers, RMDs are an important source of income and they do not have the luxury of choosing not to take distributions for 2020.  In this case, savers may still want to be strategic about the source of their RMD.  For example, rather than taking a distribution from an equity investment that may have declined substantially, it may be appropriate to sell an investment that may be less impacted by the volatility – like cash, money markets or treasuries.

For taxpayers that do not need to take a distribution, limiting the need to sell a long-term investment portfolio when it is down can be

helpful.  However, markets may remain volatile for months and years to come so be sure to review your portfolio with your adviser before determining your liquidation strategy.

Other strategies to consider

With markets down and no requirement for RMDs in 2020, Roth IRA conversions can be an appropriate strategy for some tax payers at this time.  This may make sense for savers with more significant portfolio declines, lower income than usual and cash available to pay the tax on the conversion.

Investors should consider the tax ramifications, age and income restrictions in regards to executing a conversion from a Traditional IRA to a Roth IRA.

Understanding the implications of the CARES Act and SECURE Act for 2020 and beyond may help you to plan better for your financial future.  Since everyone’s situation is unique, consider speaking to your tax and financial adviser to determine the most appropriate approach for you.



Kurt J. Rossi, MBA, CFP®, CRPC®, AIF® is a CERTIFIED FINANCIAL PLANNERtm & Wealth Advisor.  He can be reached for questions at 732-280-7550,, & LPL Financial Member FINRA/SIPC.