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The RMD Waiver - What does it mean for you?

Tommy Blackburn, CFP®, CPA, PFS

John Mason, CFP®

The United States Government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27th in response to the COVID-19 Pandemic.  The CARES Act provided for Recovery Rebates for eligible individuals and households, waiver of the 10% penalty on distributions from qualified retirement plans (Coronavirus-related), business tax relief provisions, and much more.  The CARES Act also waived or eliminated the requirement to distribute Required Minimum Distributions (RMDs) from retirement plans in 2020.  This is a welcome relief that allowed investment accounts to rebound from the over 30% decline in the first quarter of 2020.

What is an RMD?

Required minimum distributions are forced distributions from retirement plans.  The amount of the distribution is based on the 12/31 value of the prior year and a factor from the IRS Joint Life Expectancy Table.  All retirement accounts, except Roth IRAs, have required minimum distributions.

RMD Age Updated

Previously, the RMD requirement began at age 70 ½ and is still 70 ½ for those who attained this age by 12/31/2019.  If one reaches 70 ½ after 12/31/2019 their first RMD is the year they reach age 72. 


RMDs are a perennial thorn in the side of retirees.  These forced distributions are generally required on all retirement accounts such as Thrift Savings Plan, 401(k), 403(b), and Traditional IRAs.  It is important to note that there is an RMD requirement on Roth employer retirement plans but NOT Roth IRAs.  These distributions are extremely frustrating, particularly for those who do not need the income and will likely reinvest the distribution.  The forced distributions cause a variety of issues for retirees such as:

  1. Triggering a Medicare Part B Income Related Monthly Adjustment Amount (IRMAA)
  2. Causing more of Social Security benefits to be taxable
  3. Increasing adjusted gross income (AGI) which could eliminate certain itemized deductions
  4. Increasing adjusted gross income which could lead to a partial or complete phase out of the CARES ACT Recovery Rebates.

A Proper Celebration

The RMD waiver is a point of celebration for retirees for the reasons noted above. How should one properly celebrate?

  1. Do nothing - The path of least resistance is to not take any distributions from qualified plans in 2020.  We suspect that most Americans will take this option for one reason or another.  At the time of this blog, we expect most qualified account values to be at or near their 12/31/2019 values.  Not taking a distribution in 2020 may be the best action for some but for others could actually be compounding the RMD problem.  If the market and account values continue to rise, the 2021 distributions could be even larger due to not taking a distribution in 2020 and a higher distribution percentage.
  2. Roth Conversion - Consider converting what would have been your RMD to a Roth IRA.  RMDs are NOT eligible to be converted to Roth IRAs.  However, since RMDs have been waived this year, one could convert the planned RMD to a Roth IRA in 2020.  The Roth conversion will create the same taxable income that would have been incurred if the RMD had not been waived.  Instead of reinvesting the RMD in a non-qualified account, one can take this opportunity to effectively reinvest their RMD in a Roth IRA and allow it to grow tax free for the rest of their lives.  Consider using Uncle Sam’s tax rebate/credit of $1,200 for single and $2,400 for married to help pay the taxes or subsidize the cost of a 2020 Roth conversion.  Although account values have rebounded nicely off their lows in March, there may still be an opportunity to convert at depressed values.  Targeted Roth conversions could allow one to convert a specific mutual fund, ETF, stock, or bond that was previously valued higher than it is today.  For example, a security that was previously valued at $100 per share that is currently valued at $90 per share.  The result of this Roth conversion would be the taxpayer incurring $10 less taxable income per share on a Roth conversion.

Although the Roth conversion strategy sounds appealing, we don’t recommend proceeding without the help of a professional who has helped design a comprehensive financial plan and tax plan. Roth conversions are irrevocable and should only be recommended once there is a complete understanding of one’s personal situation and a comprehensive financial plan is in place.

Please reach out if you are interested in discussing further with one of our financial planners.