Inherited IRAs and RMDs Under the CARES Act: Today's Slott Report Mailbag | Ed Slott and Company, LLC

Inherited IRAs and RMDs Under the CARES Act: Today's Slott Report Mailbag

By Andy Ives, CFP®, AIF®
IRA Analyst
Follow Us on Twitter: 
@theslottreport


Question:

Hi,


My question is:  Does the SECURE Act affect inheritors of a Roth IRA account?  If so, in what way, and why - since it is not a pre-tax account? I look forward to your reply.  Thanks.

Regards,

Vikram


Answer:

Vikram,

Yes, the SECURE Act does affect inherited Roth IRAs for those who inherit in 2020 or later. (Any Roth IRAs inherited prior to 2020 fall under the old rules.) Under the SECURE Act, only eligible designated beneficiaries (spouses, minor children of the account owner, disabled individuals, chronically ill individuals, and beneficiaries not more than ten years younger than the deceased IRA owner) can stretch RMD payments over their own life expectancy. The SECURE Act requires non-eligible designated beneficiaries to empty the inherited Roth IRA account by the end of the 10th year after the year of death. Why does the SECURE Act speed up RMD payments? Probably so that tax-free inherited Roth money that would just be sitting there and growing gets forced back into circulation sooner, thus generating more taxable expenditures.


Question:

A friend reached his 70 1/2 age last December 29, 2019.  His 2019 RMD 2019 on his IRA had a beginning withdrawal date of April 1, 2020. No actual withdrawal has been made. With the CARES Act, will the RMD withdrawal suspension in 2020 also applies to the RMD 2019 not yet taken by April 1, 2020? Does the 50% penalty apply to the RMD 2019 amount not withdrawn by April 1, 2020?

Thank you.

Rudy


Answer:

Rudy,

As you mentioned, only a person’s first RMD can be delayed until April 1 of the following year. The CARES Act waived all 2020 RMDs. This waiver also applies to first-time RMDs in 2019 that were not yet taken by the end of 2019. In a normal year, the 50% penalty would apply to any amount of a first RMD not taken by the April 1 cutoff. However, as this is not a normal year, and since your friend delayed his first RMD to 2020, there is no penalty because there is no RMD to take due to the CARES Act waiver.


Posted in:

Content Citation Guidelines

Below is the required verbiage that must be added to any re-branded piece from Ed Slott and Company, LLC or IRA Help, LLC. The verbiage must be used any time you take text from a piece and put it onto your own letterhead, within your newsletter, on your website, etc. Verbiage varies based on where you’re taking the content from.

Please be advised that prior to distributing re-branded content, you must send a proof to matt@irahelp.com for approval.

For white papers/other outflow pieces:
Copyright © [year of publication], [Ed Slott and Company, LLC or IRA Help, LLC - depending on what it says on the original piece] Reprinted with permission [Ed Slott and Company, LLC or IRA Help, LLC - depending on what it says on the original piece] takes no responsibility for the current accuracy of this information.

For charts:
Copyright © [year of publication], Ed Slott and Company, LLC Reprinted with permission Ed Slott and Company, LLC takes no responsibility for the current accuracy of this information.

For Slott Report articles:
Copyright © [year of article], Ed Slott and Company, LLC Reprinted from The Slott Report, [insert date of article], with permission. [Insert article URL] Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.

Please contact Matt Smith at matt@irahelp.com or (516) 536-8282 with any questions.

 

Find members of Ed Slott's Elite IRA Advisor GroupSM in your area.
We neither keep nor share your information entered on this form.
 

I agree to the terms and services:

You may review the terms and conditions here.