Answers on Taxing of RMDs

Comments on “Tax Guide Update: Staying Current on the New Rules,” by Charles Rotblut, CFA, in the May 2020 AAII Journal:

I took my required minimum distribution (RMD) in February. Even though more than 60 days have elapsed, can I still return the funds to a new IRA by the July 15 deadline?
—David Fleenor from North Carolina

If there is no RMD taken this year and if you make a qualified charitable distribution (QCD) this year, is it taxable as a distribution?
—Dave from Florida 

Charles Rotblut responds:
David, Since there are questions about RMDs and the rules are confusing, I want to share what long-time AAII contributor Julie Jason wrote on Forbes about the rules after speaking with IRS spokesperson Eric Smith.

“If your rollover period hadn’t expired before April 1, you have until July 15 to complete the rollover,” said Smith. “Thus, someone who took their required distribution in February or March has, if they choose, until July 15 to roll it back into their IRA or an eligible retirement plan. Someone who turned age 70½ in 2019 and waited until February or March to take their 2019 RMD could also qualify for rollover relief.”

I will add that if taxes were withheld from the RMD being rolled over, the IRS requires you to “use other funds to make up for the amount withheld.”

Dave, Making a QCD this year will not have any impact on your 2020 taxes. It will reduce the balance of your IRA and thereby reduce your RMDs for future years.

Handling Bond Risk

Comments on “The Risks of Investing in Bonds,” by Brian Haughey, in the May 2020 AAII Journal:

Given the risk of bonds in today’s environment, cash is an attractive alternative. Some banks (with FDIC insurance to $250,000) pay 1.5% interest on a savings account. Are these savings accounts accessible from an individual retirement account (IRA)?
—Marty Seitz from Maryland

Could you comment on the risk of inflation? The last 20 years have had low inflation and decreasing interest rates. This combination makes bonds look great. Now, governments here and in Europe are stimulating/providing relief. To pay for this they will have to print more money, which risks inflation. Doesn’t that make bonds risky right now?
—George Lewinnek from Massachusetts 

Brian Haughey responds:
Marty, unfortunately I am not qualified to offer tax advice. I do note that Citizen’s Bank seems to provide a service that might meet this need; perhaps other banks provide a similar service. You could enquire if your own bank does. It is worth reading about prohibited transactions and some of the IRS rules here: https://www.irs.gov/publications/p590a. However, ultimately your accountant is the best person to offer specific advice regarding IRAs.

George, inflation is certainly a risk. Some commentators have been anticipating increased inflation since quantitative easing (QE) began, although we haven’t really noticed it. There are a variety of explanations as to why not, including increased automation and the “Amazon effect,” but one element that is often overlooked is the “velocity of money,” which you can think of as how many times a dollar gets passed around in the course of a year. That number has been decreasing in recent years, which is helping to keep a dampener on inflation. If it were to pick back up, then inflation could increase sharply.