An important deadline is fast approaching that applies to anyone who wants to reverse an RMD (required minimum distribution) from a retirement account in 2020. That deadline is Monday, Aug. 31.

Here is the background: The Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was signed into law on March 27, 2020, suspended RMDs for 2020 for everyone with IRAs and 401(k)-type accounts (but not defined-benefit plans. For more details, read my April 12 column on my website (https://tinyurl.com/yylodr3n).

The suspension, which was retroactive to Jan. 1, 2020, came into effect at the end of March, after some people had already taken their RMDs for the 2020 year. What could they do if they wanted to take advantage of the suspension?

The mechanism for putting back a withdrawal from an IRA is a rollover, but rollovers are limited by time (60 days) and frequency (only one per 12-month period).

That left a gaping hole for early bird “RMD-ers” and an uneven playing field – -- hardly what Congress intended when the suspension was passed. I wrote a series of columns on the subject that you can read at https://juliejason.com/selected-columns .

Three months later, on June 23, 2020, the IRS issued Notice 2020-51, offering the welcome relief that we were all waiting for.

That notice redefined the 60-day rollover rule for this one purpose: to give more people who took RMDs in January and February – -- and in fact, any time before now – -- relief from the normal rollover rules.

First, there is a new deadline (Aug. 31, 2020) to complete the rollover. That deadline is only 10 days away as of this writing.

Second, the rollover “is not subject to the one rollover per 12-month period limitation.”

Third, inherited IRAs are not excluded from 2020 RMD suspensions and are permitted to roll over (inherited IRA rollovers are not normally permitted).

For more details, read IRS Notice 2020-51 at https://tinyurl.com/y8o2zxjp.

If you took your RMD and want to reverse it, tell your financial adviser that you want to do so right away. You can roll over RMDs taken from multiple IRAs and other tax-deferred accounts if you wish. You can roll over all or part of any 2020 RMD – -- except for RMDs taken from defined-benefit plans.

Let’s go through a few examples from readers.

A widow I’ll call Melanie took her $300,000 RMD from her IRA in January. Of that amount, $200,000 transferred into her taxable account, and $100,000 was withheld for federal income taxes. She does not need these funds for living expenses.

Melanie will need to enlist her financial adviser to make sure the reversal takes place by Aug. 31. She will authorize a transfer of $300,000 to her IRA from her taxable account in order to “undo” the $300,000 withdrawal in full.

The $100,000 that was sent to the IRS for tax withholding is stuck at the U.S. Treasury for now. That money will offset Melanie’s tax liabilities on her 2020 tax return. I confirmed with an IRS spokesperson that there is no mechanism for Melanie to request the Treasury to return the $100,000 that was withheld until she files her 2020 tax return. If that withholding causes a tax overpayment, she will be able to request a refund at tax time.

Another reader, O.M., wants to reverse her RMD, which is held at a bank in a certificate of deposit. O.M. ran into a problem. The bank told her she could not redeposit the RMD “because the IRA was a one-year CD.”

O.M. needs to go back to the bank to speak with a manager. Most banks offer non-CD IRAs. Or, O.M. can go online to a mutual fund company to set up a new IRA account to use to receive the rollover. Assume the RMD was $10,000. : O.M. would deposit $10,000 (or less, depending on her cash needs) into the new IRA. That would satisfy the rollover rules for 2020 and avoid the income tax on the $10,000 RMD, assuming she rolled over the full $10,000.

If you have any additional questions on the Aug. 31 date, email them to me as soon as possible at readers@juliejason.com. Don’t forget to tell me where you live, as the column is published nationwide.

For a quick video that covers the topics we've discussed in today's column, go to https://vimeo.com/450204863.

Julie Jason, JD, LLM, a personal money manager (Jackson, Grant Investment Advisers Inc. of Stamford, Connecticut) and award-winning author, welcomes your questions/comments (readers@juliejason.com). Please visit www.juliejason.com.

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No matter what type of investor you are, there are some very basic “truths” that drive investment activity. One such truth is that you cannot predict the direction of the market with any certainty. As some say, “stuff happens.” That truth translates into my worldview: To be successful as an investor, you need to embrace uncertainty.

It goes without saying that the challenge of uncertainty is heightened during a pandemic market such as the one we are experiencing.

At the beginning of the year, the S&P 500 index peaked on Feb. 19, at an all-time high of 3386.15. That was quickly followed by a rapid correction, which reached a bottom on March 23, as the market reacted to the unprecedented global shutdown due to the COVID-19 pandemic. Since then, the S&P 500 has recovered due to global liquidity, an expanding Federal Reserve balance sheet and interest rates near zero.

Who could have predicted the pandemic? Who could have predicted the quick market recovery? Who liquidated holdings for fear of the pandemic? Why? Who stayed the course? Why?

During this short time frame, performance by style and size ranged dramatically. The S&P 500, which is weighted by market capitalization and driven by the five largest stocks by capitalization, was down 33.8% from peak to trough, and up 47.2% from the trough to July 31.

Take out the effect of market capitalization and you have a very different story. An equal-weighted (not market-cap-weighted) S&P 500 index (the S&P 500 Equal Weight index) was down 39% from Jan. 1 through March 23, and up 49.4% from the low of March 23 to July 31.

Despite the healthy rebound, the S&P 500 Equal Weight index trailed the S&P 500 index by 880 basis points through July 31 (the S&P 500 index returned 2.4%, and the S&P 500 Equal Weight index lost 6.4%).

Another way to look at performance is to isolate the top five market-cap-weighted stocks: Facebook, Apple, Amazon, Microsoft and Alphabet (Google). These five names account for a large 23% weighting in the S&P 500 index and returned over 37.9% collectively from Jan. 1 to July 31. The remaining stocks represented in the S&P 500 index lost 6.2% collectively from Jan. 1 to July 31.

Income-generating stock funds, which are typically slower-growing and less volatile than the market, fell more than the S&P 500 Market Cap Weighted index from peak to trough.

The Morningstar Dividend Leaders index lost 39.5% compared with the decline of 33.8% for the S&P 500 index. Although the Morningstar Dividend Leaders index rebounded 42.5% from trough to July 31, it has not kept pace with the large-cap-growth names (up 47.2%), which have small to no dividend yields. The Morningstar Dividend Leaders index is made up of 100 high-yielding stocks, selected for dividend consistency and sustainability.

Through July, we have seen companies beating lowered expectations, unemployment trends improving from historical lows, and significant progress in getting coronavirus vaccine candidates to phase 3 trials. The upcoming presidential election and negotiations on further fiscal stimulus will be risks on the near-term horizon. Overall, although equities have higher volatility than bonds, they also have a better opportunity to outpace inflation.

The next unknown will be the election. We’ll talk about that in a future column.

No matter the type of investor you are, it’s a good idea to address uncertainty and how you will handle market disruptions such as we’ve seen so far in 2020.

For a quick video that covers the topics we’ve discussed in today’s column, go to vimeo.com/447938137.

Julie Jason, JD, LLM, a personal money manager (Jackson, Grant Investment Advisers Inc. of Stamford, Connecticut) and award-winning author, welcomes your questions/comments (readers@juliejason.com). Please visit www.juliejason.com.

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION

Payroll Protection Program scams are in the news these days, but frauds that target retirees haven’t gone away.

Last week, the Securities and Exchange Commission charged a San Antonio-area businessman and his company with victimizing scores of investors from 2013 to 2019, among them retired San Antonio police officers and other first responders.

Retirees were lured by an offer of returns of 10-12% per year through investments in aircraft engines and other aircraft parts that would be leased to major airlines.

You have to ask yourself this question: What would you have done if you were offered this opportunity?

The SEC alleged that promises made to investors were false, including the seller’s investment experience, the seller’s “competitive advantages, such as an algorithm that supposedly identified profitable leasing opportunities,” and the seller’s representations about securing the investments with the seller’s assets.

Allegedly, no engines were purchased, and only a small portion of investor funds was used to purchase aircraft parts. $14 million was “misspent.”

Amazingly, the alleged fraudster “continued to mislead investors after he learned of the SEC’s investigation, including by using the letterhead from the SEC’s investigative subpoena as ‘proof’ for investors that he was working with the SEC to take [the company] public.”

There was another wrinkle: Retirees made these investments with moneys withdrawn from their retirement accounts and funneled into newly created “self-directed IRAs.”

Your typical IRAs are set up by custodians, such as banks and brokerage firms, usually limiting investments to stocks, bonds, mutual funds, certificates of deposit and other liquid, tradeable investments.

Alternative assets, such as private placement securities, real estate, promissory notes, tax lien certificates, digital assets, initial coin offerings or aircraft parts, can be held in IRAs that are “self-directed.”

It turns out, as you might imagine, that self-directed IRAs can be riskier due to the nature of these holdings. In fact, the SEC’s Office of Investor Education and Advocacy issued an August 2018 investor alert noting that “[I]nvestments in self-directed IRAs raise risks including fraudulent schemes, high fees, and volatile performance.”

Further, the SEC has cautioned that “fraudsters may misrepresent the duties of self-directed IRA custodians to deceive investors into believing that their investments are legitimate or protected against losses. ... Self-directed IRA custodians generally do not evaluate the quality or legitimacy of any investment in the self-directed IRA or its promoters.”

According to David Peavler, regional director of the SEC’s Fort Worth Office, “Investors should always proceed cautiously whenever someone suggests moving funds from traditional retirement accounts to self-directed IRAs in order to make an investment.”

And, here is the best advice that one can get: “For investment opportunities like alternative assets in self-directed IRAs, investors should consider getting a second opinion from a licensed, unbiased investment professional or an attorney,” said the SEC in the alert. “This is especially important if an investor is opening or creating a new account outside a traditional financial institution or well-recognized broker-dealer.”

From my point of view as someone who started her Wall Street career as a lawyer and who later moved into money management, I wholeheartedly agree. There is no need to go it alone when considering investing hard-earned retirement assets in a too-good-to-be-true venture.

Julie Jason, JD, LLM, a personal money manager (Jackson, Grant Investment Advisers Inc. of Stamford, Connecticut) and award-winning author, welcomes your questions/comments (readers@juliejason.com). Please visit www.juliejason.com.

DISTRIBUTED BY ANDREWS MCMEEL SYNDICATION