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Ask the Expert: How does the coronavirus relief bill change RMDs?

Is it true that I don't have to take Required Minimum Distributions (RMDs) from my retirement accounts this year?

Yes. The $2 trillion coronavirus relief law waives the obligation to take 2020 RMDs from your tax-deferred retirement accounts. The waiver includes inherited accounts.

RMDs are based on your retirement accounts' value at the end of the previous calendar year, so 2020 RMDs would be based on your accounts' value on Dec. 31, 2019. The financial markets have fallen dramatically since then. If it weren't for this law, "taking your 2020 RMDs would force you to withdraw — and pay taxes on — a much higher percentage of your retirement account," says Ed Slott, a Rockville Centre tax accountant.

It's always prudent to minimize retirement account withdrawals in a bear market to the extent that you can. The less you withdraw, the greater the chance your account will recover its investment losses when the market finally turns around. Recovery takes longer than people realize, especially if you no longer have earned income to add to your savings, because you can't replace your bear market losses until your gains exceed those losses. A simple example: Let's say your account's worth $1,000. If the market falls 30%, your account is worth $700. If the market then rises 30%, your account is worth $910. It will take a 43% gain to restore your $1,000.

If you decide you can forgo taking some or all of your RMDs this year, your 2020 taxable income will be smaller. Ask your tax accountant how this would impact your 2020 tax return. (One example: if you normally pay quarterly estimated taxes, those quarterly payments should also be smaller.)

The bottom line

The $2 trillion coronavirus relief law has waived retirement account RMDs for 2020.

More information

irs.gov/coronavirus

nwsdy.li/MorningstarRMDs

TO ASK THE EXPERT Send questions to Ask the Expert/Act 2 by emailing act2@newsday.com. Include your name, address and phone numbers. Questions can be answered only in this column. Advice is offered as general guidance. Check with your own consultants for your specific needs.

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