In March, President Donald Trump signed the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act. Designed to sustain and stimulate the economy, it temporarily suspended required minimum distributions for retirement plans.

Normally, clients must withdraw a certain amount from their tax-sheltered retirement accounts when they are age 72 or older. This suspension—which applies to all RMDs due in 2020, including leftover 2019 distributions that were required to be paid by April 1, 2020—pertains to IRAs (traditional, SIMPLE, SEP, and inherited) and defined-contribution retirement accounts, including 401(k)s, 403(b)s, the federal Thrift Savings Plan and government 457(b) plans. It does not impact defined-benefit plans, tax-exempt 457 plans or Roth IRAs, which don't have required minimum distributions.

Clients will need to make decisions about how to approach this new development fairly quickly, says Marshall Heitzman, head of advanced planning at CUNA Mutual Group Annuities in Madison, Wis.

"Reach out to clients as soon as possible," Heitzman says, "particularly if the client has a pre-scheduled distribution."

What to advise them, however, varies.

The Case For Skipping The RMD
One argument for skipping the required distribution is that most account values plunged in March and April, and you don't want to take withdrawals when the market is down. You’re supposed to buy low and sell high.

What's more, the exact amount of the RMD is partly based on the account value at the close of the prior year, and markets were riding high at the end of 2019. "Account owners would have been forced to take a bigger chunk out of their remaining retirement savings," says Kimberly Foss of Empyrion Wealth Management in Roseville, Calif.

Skipping this withdrawal also gives clients time to recover from the market downturn—assuming they can afford to live without the income.

Assess Spending Needs
"If you depend on your RMD to maintain your lifestyle, go ahead and take a distribution," says Foss. "This year, you can take a smaller percentage from your account if you want, but still take enough to meet your needs."

Advisors should help clients assess those needs. "There is no point going into debt just because you don’t want to take a distribution," says Andrew Arnold, CEO and senior wealth advisor at Centerline Wealth Advisors in Louisville, Ky.

He notes that, at this point, it looks as if the RMD requirement will return to normal next year. But the dollar amount of next year's RMD will likely be higher. That's because it's based on not just the account's year-end value but also the account holder's life expectancy, which decreases every year. "Each year, an IRA owner [has] to take a larger percentage of their account balance," says Arnold.

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