Can I skip my 2021 IRA distribution because of COVID?
Q. Suppose the sole beneficiary of an IRA on the date of inheritance is categorized as a “non-eligible beneficiary” for the stretch provision, yet becomes disabled or chronically ill during the ten-year payout period. Do they then become eligible for the stretch payout of undistributed funds?
— Curious
A. Yours is a great question.
The SECURE Act — Setting Every Community Up for Retirement Enhancement of 2019 — changed the way inherited IRA accounts are treated.
The change requires most non-spouse beneficiaries to withdraw all the funds in the inherited IRA over a 10-year period, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.
“The withdrawals do not have to be done each year,” he said. “You can wait until the last day of the 10-year period and then withdraw all the funds at once. The change applies to both regular IRAs and Roth IRAs as well.”
There are five exceptions to the 10-year rule: a surviving spouse, a minor child (note the 10-year rule applies once the minor reaches the age of majority which is usually age 18), a disabled individual, a chronically ill individual or an individual who is not more than 10 years younger than the deceased participant or IRA owner.
But it seems those statuses must be at the time of the IRA owner’s death, though the SECURE Act is silent on the matter.
Email your questions to Ask@NJMoneyHelp.com.
Karin Price Mueller writes the Bamboozled column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com’s weekly e-newsletter.
Q. In 2020, Required Minimum Distributions (RMDs) were suspended due to the coronavirus. Will the federal government continue this for 2021?
— Retired investor
A. It’s a great question.
Before the coronavirus pandemic, IRA owners who were over the age of 70½ were required to withdraw a certain amount from their IRA account before the end of the year, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.
The required amount depends on the owner’s age and the value of the account on the last day of the prior year, he said
Kiely said compared to where the S&P 500 closed at the end of 2019, the index dropped more than 30.7% by March 23, he said.
That would have meant many people who needed to take their Required Minimum Distributions (RMDs) would have had to sell securities, potentially at a big loss.
Kiely said the CARES Act waived RMDs for 2020.
“If you already took your RMD, you had the 60-day rule to return your distribution to your IRA,” he said. “Later legislation said everyone could return the distribution by Aug. 31, 2020.”
There are several pieces of legislation that could make more changes.
First, Kiely said, there is legislation moving through Congress to move the RMD age from 70 to 75. This change would not apply to those who are currently 70 or older, he said. This legislation has not been enacted, he said.
So for 2021, will there be another RMD waiver?
As Kiely said, the 2020 waiver was because the stock market suffered a tremendous loss in the first quarter of 2020.
“As I write this the S&P 500 is just off of it’s all time high,” he said. “I think it will be unlikely that 2021s RMD will be waived.”
But given the stock market, this is a time when you could be selling high, he said.
“If you need the income to buy groceries, by all means take your RMD,” he said. “If you are in the position where you don’t need the cash flow, wait until December before you take your 2021 RMD.”
Email your questions to Ask@NJMoneyHelp.com.
Karin Price Mueller writes the Bamboozled column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com’s weekly e-newsletter.