Maria Bruno explains what the CARES Act means for RMDs.
Rebecca Katz: “What are the pros and cons of not taking IRA RMDs, so required minimum distributions?” When you turned a certain age, you have to take money out of your IRAs, but the CARES Act waived that, and you don’t have to take it this year. So can you talk a little bit more about the CARES Act?
Maria Bruno: The CARES Act was passed in late March as part of the stimulus package. I think two key provisions for investors were, one, not having to take required minimum distributions for this year. We essentially get a free pass this year.
So if you don’t need the money, the natural inclination is to keep it in the IRA and let the money continue to grow. You participate in the market participation as the, hopefully, as the markets ebb and flow and go up.
The other thing to think about though, is this an opportunity from a tax planning standpoint? With RMDs, there are some tactics that you may be able to employ and you don’t necessarily have to take the full RMD amount, but if you’re in a relatively lower tax bracket this year, then maybe you would want to take that distribution. You may be paying relatively lower taxes. You’re lowering your IRA balance, which then will lower future RMDs. So those are a couple things to think about.
A natural inclination would be to not take it, but I would really think about whether there’s a tax planning opportunity to take it.
The other thing I will say is if you are enrolled in an automatic RMD program, Vanguard offers one, you do need to actively suspend that if you don’t want to take the distribution. So you can go online and suspend that for 2020.
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