Already Take an RMD? Know a College Student? Must-Know Reminders

June 26, 2020

Allworth Co-CEO Scott Hanson explains a new IRS mandate regarding RMDs (Required Minimum Distributions), along with an overlooked provision of the CARES Act that could be worth up to $5,000 for college students.

While new COVID-19 infections are on the rise, as of this week, thankfully, deaths from the pandemic are still lower than what we were seeing in March, April, and May.

Earlier this week, in reference to the numerous obstacles the pandemic has placed in front of everyone, Pat McClain, Co-CEO of Allworth Financial—and my business partner and friend for over 30 years—joined me to address the team members of the firm. During this address, Pat said something that I hope resonates with you, as it did with me: “In the face of all this uncertainty, we need to all do our best to only focus on those things we can control. Yes, we’re always going to be aware of the things that are beyond our influence, but the one thing I know we have control over, is how we support our clients and how we support one another.”

Not a single day has gone by where I haven’t had to remind myself that, someday, this pandemic will end. Maybe even soon. But until then, the one thing we all share right now, all of us, is that we are all together at the forefront of something so unusual and pervasive, that its emotional impact, even if the virus never physically infects you, is hard to measure and can vary day-to-day.

Simply, emotionally or physically, if you aren’t feeling well in any way, I encourage you to reach out and ask someone for help or support.

That said, our financial lives march on, and continuing to make informed decisions about money is something we all must strive to do.

With that in mind, what follows are a couple of things related to the CARES Act: An overlooked aspect for college students from the original bill (which could be worth as much as $5,000 to eligible students), and a recent amendment pertaining to RMDs, which could impact a lot of people.

IRS announces a surprising break for people who’ve taken an RMD in 2020

A Required Minimum Distribution (RMD) is a percentage of the balance of a qualified retirement account (such as a traditional IRA, 401(k), 403(b), etc.) that must be withdrawn starting the year the account holder reaches age 72.

Simply, RMDs exist to guard against people using these accounts to avoid paying taxes.

So, what did the IRS just do that has many people singing its praises?

On June 23^rd, 2020, the Internal Revenue Service announced “IRS Notice 2020-51,” which stipulates that “All taxpayers who have taken a required minimum distribution (RMD) in 2020 (including those RMDs taken before the CARES Act was signed into law) from an eligible retirement account, now have the opportunity to roll those funds back into that retirement account by August 31^st, 2020.”

This would enable that money to continue to grow tax-deferred (for the time being, at least).

Before IRS Notice 2020-51, people who had taken an RMD could roll it back into their retirement account by July 15^th, 2020, but only under the condition that the 60-day rollover deadline fell between April 1^st, 2020, and July 15^th, 2020.

Perhaps the surprising part of the announcement is that IRS Notice 2020-51 also includes inherited IRAs, which generally require non-spouse beneficiaries (children, grandchildren, etc.) to begin taking RMDs from IRAs they inherit the year following the death of the original owner, regardless of their age.

Again, a key distinction now is, that IRS Notice 2020-51 retroactively serves to cover people who took RMDs in January and February.

Now, as you might recall, included in March’s CARES Act was a waiver for 2020 RMDs, which was a potential boon for those of you who had yet to take one for the year. This new rule is especially beneficial to those who took RMDs early in the year, and for those people who have inherited a retirement account but received no RMD delay under the CARES Act.

Importantly, this has complex tax implications for a lot of people, and its pros and cons largely depend on your other income sources and your tax bracket.

But for those older people in higher tax brackets, IRS Notice 2020-51 could be viewed as a “reset” because, among other advantages, it might lower the taxes you’re required to pay on Social Security, and even reduce some Medicare surcharges.

(Please note, the above is a quick overview of an alteration to an existing law, so contact your advisor and/or your accountant before making any decision regarding RMDs.)

Do you have a college student in your life?

When the CARES Act was introduced, it was such a large stimulus bill, that the headline grabbers (support for small businesses and direct payments to taxpayers) hogged all the oxygen in the room, but lost in the shuffle was something substantial that many eligible college students (and their parents) have overlooked.

The CARES Act set aside at least $14 billion for higher education, with some $6 billion earmarked specifically for students impacted by COVID-19.

Due to the confusion, much of that money remains unclaimed. (In fact, as of May 1^st, just 1% of it had been distributed.)¹

Depending on the circumstances, the college student in your life could be eligible for an amount ranging from as low as $500 to as high as $5,000. Called the “Higher Education Emergency Relief Fund” (HEERF), while there are various eligibility requirements, they’ve recently been broadened to make up for the fact that colleges, burdened with numerous first-of-a-kind problems in the face of the pandemic, have pretty substantially failed to inform students that money might be available to them.

If you have a college student in your life, “HEERF-student share” might be worth looking into.

In closing, if you aren’t already a client of Allworth Financial, and you’d like an evaluation of your investments or your current retirement plan, we offer free, low key consultations. Check us out.

And for our clients, as always, if you have any questions about the information provided above, or have any question you’d like answered, please reach out to your advisor.

We’re here to meet your needs and we always love hearing from you.

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¹Barron’s 2024 Top 100 RIA Firms. Barron's© magazine is a trademark of Dow Jones L.P. The ranking of independent advisory companies is based on assets managed by the firms, growth, technology spending, succession planning, and other metrics.

² Retention Rate Source: Allworth Internal Data, FY 2022

³ The NBRI Circle of Excellence Award is bestowed upon NBRI clients meeting one or both of the following criteria: Total Company score at or above the 75th percentile of the NBRI ClearPath Benchmarking Database and/or improvement of five (5) or more benchmarking percentiles in Total Company score over the previous survey.

⁴ As of 7/1/2024, Allworth Financial, an SEC registered investment adviser and AW Securities, a registered broker/dealer have approximately $22.5 billion in total assets under management and administration.

⁵ InvestmentNews 2020 and 2021 Best Places to Work for Financial Advisers. The ranking reflects survey responses and scores completed by both employers and employees. Employers report their organization’s workplace policies, practices, and demographics. Employees complete a survey designed to measure the employee experience.

⁶ 2021 Value of an Advisor Study / Russel Investments

⁷ Ranked 9th Top Wealth Managers By Growth in Assets in the U.S. from RIA Channel, 2022. RIA Database and RIA Channel are registered trademarks owned by Labworks, LLC.

⁸USA Today Best Financial Advisory Firms 2024. The ranking is based on the growth of the companies’ assets under management (AUM) over the short and long term and the number of recommendations they received from clients and peers.

⁹NBRI Best in Class Ethics 2023. The Best in Class level is bestowed upon clients performing at or above 90 percentile of the NBRI ClearPath Benchmarking Database.

^✢ Scott Hanson, Investment Advisor 2005, 25 most influential people in the financial services industry. The ranking reflects 25 people who Investment Advisor magazine believes have had or will have the greatest influence on the financial services industry.

^✼Pat McClain, InvestmentNews 2014, Invest in Others Community Service Award, presented to an advisor who has made an outstanding impact on a community through managerial contributions to a non-profit organization.

^†Financial Times, FT 300 Top Registered Investment Advisers, June 2019. The ranking reflects six areas of consideration including the company's years in existence, industry certifications of key employees, AUM, asset growth, SEC compliance record and online accessibility and calculates a numeric score for each company.

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