A Few Caveats
Clients who skip this year's required minimum distribution must be careful not to overlook next year's requirements. "Those receiving automated distributions … may need to restart those payments," cautions Dave Stinnett, head of the strategic retirement consulting group at Vanguard in Malvern, Pa.
Experts also warn that returning an RMD can only happen once in a 12-month period. "People who were taking their 2020 IRA RMD in monthly installments can only put back one of those installments," says Natalie Choate, an estate planning attorney with Nutter McClennen & Fish in Boston.
The rules are a little different, too, for beneficiaries who inherited tax-deferred accounts. They're eligible to skip this year's RMD, but they can't return the funds if they've already taken them—with the possible exception of spouses, who can execute what's called a spousal rollover. In general, though, beneficiaries cannot "enjoy the same opportunity to replace already distributed amounts," says Heitzman at CUNA Mutual.
What To Do With RMD Funds
Advisors offer a few ideas about what clients can do with their required minimum distributions if they don't need the income.
They can convert it—or a part of it—to a Roth IRA. This doesn't provide an immediate tax deduction, but there will be no penalties or additional taxes when funds are withdrawn. "A Roth conversion could be done without having to sell shares," says Philip D’Unger, senior team leader of wealth planning at CAPTRUST in Raleigh, N.C.
Another idea is to donate to charity. Shelly-Ann Eweka, a wealth management director at TIAA in Charlotte, N.C., says the CARES Act increased the limit on charitable deductions from 60% of adjusted gross income to 100%, and those who don't itemize can deduct donations up to $300.
Meanwhile, Congress is considering a further stimulus bill that would, in part, wipe out the RMD requirement for 2019 as well. "To be honest, this provision is the ultimate head-scratcher, since 2019 RMDs are all taken out by now," says Jamie Hopkins, Philadelphia-based managing director of Nebraska’s Carson Coaching.