Recent tax law waived required minimum distributions (RMDs) from IRAs and other qualified plans for 2020.  This is an advantage for taxpayers who do not need the funds as the money can continue to grow tax deferred.  If you decide to forgo your RMD for 2020 and typically have federal income tax withheld from your RMD to cover your tax liability, you may need to consider other options in order to avoid an estimated tax penalty.  Other options for timely submitting your federal income tax to the IRS include paying quarterly estimated taxes, increasing withholding from wages if still working, or increasing withholding from Social Security or pension payments if not working.


One question that has arisen with the waiver of RMDs for 2020, is whether or not qualified charitable distributions (QCDs) are still allowed for 2020.  Good news – the answer is yes!  As a reminder, QCDs are direct transfers of funds from IRAs to qualified charities.  The IRA distributions are not taxable and no charitable write-offs can be claimed.  Taxpayers must be age 70 ½ to be eligible and are limited to $100K annually per person.  Even though RMDs are suspended for 2020, QCDs remain a valuable tax savings tool for 2020.  Benefits of QCDs include:

  • Double dipping – You get the benefit of taking the standard deduction while also canceling out the income from the IRA distributions.  This is especially beneficial with the doubling of the standard deduction by the Tax Cuts and Jobs Act, as many taxpayers are no longer able to itemize.
  • Savings on Medicare premiums – Medicare premiums are calculated based on your adjusted gross income (AGI), and since QCDs are not included in your AGI, they can help to keep the cost of your Medicare premiums down.
  • Reducing tax on Social Security benefits – Your AGI is a factor in determining the taxability of your Social Security benefits, and since QCDs do not add to your AGI, they can help keep the taxable portion of your Social Security benefits down.
  • Eliminating the net investment income tax (NIIT) – The NIIT is a 3.8% tax on investment income which applies to taxpayers with modified AGI greater than $200K for single taxpayers and $250K for joint filers.  Utilizing a QCD may keep your modified AGI below these thresholds and thus eliminate any NIIT.
  • Reducing future RMD amounts QCDs reduce the balance in your IRA which is used to calculate future RMD amounts.


In addition, the CARES Act created a unique opportunity for taxpayers to borrow funds from their IRAs tax-free during 2020.  Taxpayers qualifying for the coronavirus related distributions (CVDs) can withdraw up to $100K from their IRAs and have up to three years to re-contribute the distributions and avoid income tax.  Furthermore, the 10% early withdrawal penalty for taxpayers under age 59 ½ does not apply to CVDs — even if not re-contributed over the three years.  In order to qualify for a CVD, you must meet one of the following tests:

  • You are diagnosed with Covid-19
  • Your spouse or dependent is diagnosed with Covid-19
  • You experience adverse financial consequences as a result of being quarantined, furloughed, laid off, or forced to reduce work hours due to Covid-19
  • You are unable to work because of a lack of childcare due to Covid-19 and experience adverse financial consequences as a result
  • You own or operate a business that has closed or had operating hours reduced due to Covid-19 and have experienced adverse financial consequences as a result
  • You have experienced adverse financial consequences due to other Covid-19 related factors to be specified in future IRS guidance

Utilizing CVDs may benefit taxpayers by providing much needed cash now.  CVDs can be withdrawn from one or several IRAs and the funds don’t have to be put back into the same IRA from which they were withdrawn.  The three year window for repaying each CVD begins the day after withdrawal.  If you choose not to contribute the funds back into your IRA, you have the option to pay the tax entirely in 2020, or you can report the income over three years.  Consult your Ketel Thorstenson, LLP tax advisor to discuss your specific tax situation.