It’s safe to open your eyes now, and time to take a peek at your IRA. Whether you’re still contributing or thinking about withdrawals, there are some changes to the rules and some opportunities for planning.

RMDs
As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, you won’t have to take a withdrawal from your IRA in 2020.

Since all 2020 RMDs would have been based on values last Dec. 31 at all-time stock market highs, the CARES Act simply suspended all RMDs for 2020. That includes RMDs taken from 40l(k) and 403(b) plans, as well as SEP and Simple IRAs and the Federal Thrift Savings Plan.

But what about people who had already started taking monthly RMDs in early 2020, planning to spread out withdrawals over the year? Usually, you cannot return an RMD or use it as a rollover. But since there is no requirement that you take money out in 2020, those withdrawals are no longer considered RMDs!

Now these early distributions — taken after Feb. 1 — can be rolled back into your IRA if you don’t need the money. Sadly, if you took your presumed RMD in January 2020, you’re stuck with it — and the income taxes on it. There is some hope that future legislation might roll that date back to Jan. 1, but nothing yet. And non-spousal beneficiaries of inherited IRAs cannot return money to the IRA account.

The one thing that could disqualify you from returning RMDs taken after Feb. 1, is the “once-a-year rule.” It says you can only do one rollover from an IRA another IRA or one Roth IRA-to-Roth IRA rollover every 365 days. Note, this is not a calendar year. So, if you rolled from one IRA to another in the past year, you can’t return that RMD. The rule does not apply to rollovers from a 40l(k) and similar plans to IRAs.

If taxes were withheld from your original RMD, you can’t get them back. But you can use them as a credit on your 2020 return. And if you file quarterly estimated taxes, you might lower your estimates by the amount that was withheld. The first two estimates for 2020 are not due until July 15.

Time to convert to a Roth?
There may be another interesting opportunity for owners of traditional IRAs. With stock market values down from their highs, you might consider converting to a Roth IRA. You can even convert just a portion of an IRA. But you should have money held outside that account to pay the ordinary income taxes that will be due on the money converted to a Roth. And you should be careful that this additional withdrawal, when added to your other income, doesn’t push you into a higher tax bracket, or a higher Medicare premium, or otherwise impact certain benefits based on your income level.

This could be an interesting time to do at least a partial conversion, because lower stock market values mean lower taxes. And if your other income will be lower in 2020 because of temporary job or income loss, you’ll be in a lower tax bracket. Also, the money held in liquid assets that you will use to pay the taxes isn’t earning very much in the bank. One other consideration: If you think tax brackets might be higher under a future administration as we deal with the debt overhang, it might be a good idea to have some after-tax retirement income.

Roth IRA advantages
You’re never required to take RMDs from a Roth IRA. And all future growth in the investment can ultimately be withdrawn tax-free. This is a good time to discuss this strategy with your investment advisor to see how it might play out in the long run.

A final word on IRAs (and your other retirement accounts): Just take a look at where you stand now. Are you under-invested in stocks because of the market decline? Or do you think your stock exposure is too risky, given the economic climate and your new awareness of your own risk tolerance?
It’s time to pay attention. Remember, no one cares as much about your IRA as you do. And that’s The Savage Truth.