The Mystery of the RMD

As you may know, the CARE Act suspends the Required Minimum Distribution from 401k, IRAs and similar plans for 2020. If you don’t absolutely need the distribution, you might want to consider leaving your investment in place.

The Wall Street Journal has a good article explaining RMD rules under CARE.

But how is the RMD calculated? It’s really quite simple. For 2020 the RMD is based on your account balance on December 31, 2019. That amount is then divided by the IRS lifetime table. The older you are are greater percentage you must take.

For example, let’s say your account balance on the previous years December 31st is $600,000 and you are age 76 this year. Your RMD would be $27,272.72 ($600,000/22). But if you were age 80, your RMD on the same $600,000 would be $32,085.56 simply because you statistically have less time to use the funds.


  1. The rules for 401(k) plans and IRAs are slightly different. In your 401(k) plan, the RMD may actually be treated as a distribution election designed to meet the code requirements (versus a government mandate – there actually is no mandate to take the money out, only a 50% penalty tax if you fail to take out at least the right amount).

    So, if you get a 2020 distribution that you don’t want, consider rolling it over to an IRA or even back to your existing plan. Generally speaking, you have 60 days to make that happen.

    Check with your legal and tax counsel before taking any action.


  2. How do we go about informing someone that we want to leave the funds alone this year and not take a distribution.


    1. None of my accounts are automatically distributed so do nothing. But if you have an auto RMD I would hope the record keeper asks first. But to be sure I would contact the record keeper in the Fall to be sure.


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