Q. What options would I have this year regarding my IRA Minimum Required Distributions, which I would normally take by year end?
A. Good question. Here are three. While not intended as an exclusive list, they are top of mind for me:
Option #1: Skip MRD’s Altogether This Year. This is a new option for IRA owners who would otherwise be required to take Minimum Required Distributions (“MRD’s”). In response to the Corona Virus Pandemic, Congress passed, and the President signed, three major bills this year aimed at lessening the economic impact of the Covid Pandemic and restoring economic vitality to the nation’s economy. One of them is called the Coronavirus Aid, Relief, and Economic Security Act (i.e., the “CARES Act”). One of its provisions allows IRA owners–who are of an age that would otherwise require them to take Minimum Required Distributions (“MRD’s”) before year end–to skip the MRD withdrawal altogether this year. This is really something new. For IRA owners who can afford to do so, and who would prefer to see their IRA grow and/or would prefer to forego the additional taxable income this year, this may be an excellent choice. If you have already taken your distribution and would prefer to return that to your IRA, check with your financial advisor or IRA Custodian to find out if you can still do so, as there are special rules that would apply in that situation.
Option #2: Make A Qualified Charitable Donation With Your MRD’s: You can arrange to allocate all or some of your IRA MRD’s to a charity of your choice. The contribution would still count toward the required MRD’s, but the distribution will not be included in your taxable income. However there are special rules that would apply: Notably, the contribution must be made directly from your IRA to the charity; it cannot be made to you initially, with you later turning around and sending the funds off to the charity. Check with your IRA custodian to see if it offers this service. I understand that Fidelity, Vanguard, T. Rowe Price, Charles Schwab and Wells Fargo offer this option to their customers. Important Note: the charity must receive the contribution and cash the check before the end of the tax year to make this work. Although you will later receive a Form 1099–R, it is up to you – not your IRA custodian – to properly report the contribution as a nontaxable Qualified Charitable Donation.
Option #3: Fund a 529 Plan for Your Grandchild. If you have been thinking of funding, or contributing to, a 529 educational plan for your grandchild, this might be an excellent place for the money. True, this distribution will be taxable income to you initially, but once you fund your grandchild’s 529 plan, the contribution will grow, and can ultimately be withdrawn, income tax free so long as used for qualified educational purposes.
If none of these appeal to you, check with your financial advisor, as there may be other options for you to consider.