By Andy Ives, CFP®, AIF®
Great work you all do. Been a reader of Ed for a long time. How would this scenario work? New client of mine’s husband passed away in 2019 and he had not taken his RMD. The plan was to transfer the account to my firm and take the RMD when it got to my firm as there was plenty of time. However, the insurance company kept rejecting the transfer paperwork (as they did not tell the client everything they needed to submit). Therefore, the transfer did not occur until early 2020, so they missed the RMD. With the CARES Act, does this mean that the 2019 RMD would be waived??
Thanks for being a loyal reader! If 2019 would have been his very first required minimum distribution (RMD) – meaning he turned 70 ½ in 2019 – then the RMD does not need to be taken, because he died prior to reaching his required beginning date (RBD). (For someone who turned age 70 ½ in 2019, the RBD was April 1, 2020.) However, if your client turned 70 ½ before 2019, then we have a missed RMD situation. Missed RMDs are not uncommon. While the missed RMD penalty is 50%, it is often forgiven by the IRS. His 2019 year-of-death RMD must still be taken, and Form 5329 will need to be filed, along with a note explaining the situation and how it has been rectified. The CARES Act RMD waiver is not applicable here.
Hi Ed & Team. As a subscriber, I am most pleased to have your guidance in uncertain times like these. Maybe this question made it into a previous “mail bag,” but I have not yet seen it.
Obviously, the CARES Act changes various aspects of retirement plans & IRAs. One question which arose today was where a client who would normally be subject to a 2020 RMD (but now does not have to take it due to the CARES Act waiver) – wants to convert her IRA to a Roth. Since there is no RMD, I am presuming the whole IRA can be converted – correct? Normally, she would have to take her RMD, then convert the balance, but this year may be different?
Any help you could give would be most appreciated.
You are 100% correct. Normally, a required minimum distribution (RMD) cannot be rolled over or converted to a Roth. So, for a person subject to RMDs, they would need to take their RMD prior to doing a Roth conversion of all or a portion of their remaining IRA. But 2020 is different. Since the CARES Act waived 2020 RMDs, then an IRA owner can, in fact, do a Roth conversion without taking any required withdrawals prior to the conversion.