IRAs: Watch out for August 31, 2020

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Hello friends!

Hope you are all doing well in what must be one of the strangest times in our lives.

As you may know, there have been many new laws affecting taxes and IRAs that have been passed over the last 8 months or so. I will be writing several different pieces about them.

But this one is about an item for which you only have two weeks remaining to take advantage of. After August 31, 2020, unless the IRS modified it, you will not be able to do this. And to let you know, this blog post only is meaningful for people over age 70. The rest of you can leave unless you have folks for whom you assist in their financial planning.

Return your money to an IRA.

Brief explanation: If you have a taxable IRA account, you had to take Required Minimum Distributions (RMDs) from your IRAs once you reached age 70½ (this is not taking into account the SECURE Act that was passed in December 2019). Failure to do so might have subjected you to a penalty for each year until you took out the RMD. Many people had it set to have their RMDs withdrawn automatically to avoid that problem.

Along comes the Coronavirus and the stock market is decimated. March 9, the DJIA drops 7.79%. March 12, 9.99% drop. And then on March 16, 12.93% drop. Overall, almost a 20% overall decline in value. In the market. Where most people have their IRAs invested.

Congress, concerned by everything that is occurring beyond just the illness passed the CARES Act and it became law on March 27, 2020. With MANY aspects of change, the most important to many people was getting the Stimulus payments out.

But one of the aspects of the law was the ability to reduce the financial losses people incurred by selling their investments at what might have been historic lows for them, to take out RMDs. To take out $2,000 of a stock selling at $50 only took 40 shares. But when that stock fell to $40 per share, it now took 50 shares to meet that same requirement. Those 10 shares now had no chance to recover in value.

In the CARES Act, Congress eliminated the need to take an RMD in 2020. For that matter, some people who had until April 1, 2020 to take out their first RMD for 2019, were also eliminated from that requirement.

But what of the taxpayers who had RMDs set up to come out monthly like my friend Jim? He, like some others, did not have the need for the RMD funds but was merely complying with the law.

The new law also allowed Taxpayers to return the funds to the IRA and thus avoid the taxation for 2020.

So, if you took out the funds, let’s say a total of $10,000, you could refund it to the IRA and not be taxed in 2020.

But … you tell me you had taxes withheld and may not have the tax money available to replenish the IRA to pre-withdrawal status. If you do not put all the money back into your IRA, the amount withdrawn as an RMD and not re-deposited will still be taxed. So, the source of the funds (hopefully nontaxable) to replenish as much of the RMD as possible is of little tax consequence.


IRS in a recent ruling said you have only until August 31, 2020 to replenish your IRA accounts. Today is August 18. You have only two weeks.

There will be other blogs I will be writing about some of the new IRA rules for 2020. But this one is time sensitive. And remember, this applies ONLY to RMDs. Voluntary withdrawals more than RMDs are not eligible for the redeposit.

Click on any of the links above to schedule an appointment to talk with me about this, or to send me an e-mail.