Should you take your IRA Required Minimum Distribution in 2020?

by C. Michael Bader, Esq., MBA, CPA, CIMA® Jul 27, 2020 Estate & Generational Wealth Planning, Financial Planning, Tax Consulting

Thanks to the CARES Act, passed earlier this year, individuals who would ordinarily be required to take the Required Minimum Distribution from their IRA in 2020 now have a choice whether or not to take that distribution. 

There are several scenarios where taking the distribution would be prudent: 

  • If you need it for cash flow then you should certainly take it. 
  • If 2020 will be a year in which your marginal tax rate will be lower than in future years, you should consider taking it in 2020. 
  • If you are convinced, because of COVID-19, federal budget deficits, or for other reasons, that the government will raise your marginal tax rate in the future, you should consider taking it in 2020. 

If these scenarios do not apply to you, in most cases individuals should defer their distribution to future years thereby allowing their IRA investment to continue to grow, tax deferred.

Do not worry if you have already taken all or a portion of your 2020 distributions. You may redeposit the distributed amount(s) to your IRA and suffer no income tax consequences for the current tax year, but you must do so before August 31, 2020.

Estates subject to federal tax.

In the unusual case where an individual has an estate large enough to be subject to federal estate tax, it may also make sense to take the distribution in 2020. This is because when the IRA owner passes, said IRA is subject to the estate tax. Thereafter the beneficiaries will be responsible for the income tax on any IRA distributions received. For amounts distributed prior to death, however, the IRA owner is responsible for paying the income tax. The resulting amount of income tax paid is, of course, not included in the owner’s estate for estate tax purposes. Here's an example: 

The IRA distributes $100,000 to the owner. > The owner pays $40,000 income tax. > Upon death, the $100,000 is presumably still in the owner's estate...but the $40,000 income tax paid by the owner to the IRS is no longer available to be taxed in the owner's state. 

Before making the decision to take the Required Minimum Distribution from your IRA in 2020, it's important that you discuss the particulars of your situation with your tax adviser. 



© 2020 Sanderson Wealth Management LLC. This information is not intended to be and should not be treated as legal, investment, accounting or tax advice and is for informational purposes only. Readers, including professionals, should under no circumstances rely upon this information as a substitute for their own research or for obtaining specific legal, accounting, or tax advice from their own counsel. All information discussed herein is current as of the date appearing in this material and is subject to change at any time without notice. Opinions expressed are those of the author, do not necessarily reflect the opinions of Sanderson Wealth Management, and are subject to change without notice. The information has been obtained from sources believed to be reliable, but its accuracy and interpretation are not guaranteed.