What You Should Know About the CARES Act and How It May Affect Your Retirement Plan.
The CARES Act was signed by President Donald Trump March 27, 2020. This economic stimulus package included a few changes to rules around retirement plans. These rules were amid at helping those affected by COVID-19 by providing relief in how withdraws and loans are treated while we work to recover from this pandemic.
- RMD’s otherwise known as Required Minimum Distributions are suspended for 2020. (These include RMD’s from inherited IRA’s as well.)
So, what does that mean for you? Well, if you were scheduled to take an RMD from your IRA (over 70 ½ yrs. of age), than you may want to consider taking advantage of this suspension to assist with your recovery from COVID-19. If you do take your RMD this year you may still be subject to taxes as this does still have to be claimed as income for 2020. (Please consult your CPA or Tax Advisor for guidance on your personal situation.)
- 2019 Contributions to IRA’s has also been extended until July 15, 2020.
If you haven’t yet contributed to your IRA for 2019, you now have until July 15, 2020.
So, procrastinators may benefit from this date as well as those that have been effective financially by Covid-19, giving you more time to save for your retirement.
- The 10% penalty for taking an early withdraw from your IRA or 401(k) is being waved.
To take advantage of this, you must have taken the distribution between Jan. 1, 2020 and Dec. 31st, 2020. This only includes distributions under $100k
- Taxes on this distribution can be paid over a three-year period or you have the option to recontribute the distribution back to your 401(k) plan or IRA.
If you decide to take a distribution, you will have to consider this as income for 2020. This may cause an additional tax responsibility. You will however have the option to pay the taxes or contribute back to the retirement account over a three-year time period.
(Please consult your CPA or Tax Advisor for guidance on your personal situation.)
- A Hardship (Coronavirus) withdraw may also be taken from your qualified retirement plan as well.
You do have to qualify to take withdraws/distributions from your IRA or retirement plan under these changes. These actions must be coronavirus related. Meaning that either yourself, your spouse or dependent must have been diagnosed with COVID-19 or you must have experienced a financial hardship. (i.e. Quarantined, Laid Off, Furloughed or Loss of Hours, Loss of Childcare) Also, a self-employed individual may qualify if their business had to close or had to reduce their hours due to COVID-19. Plan Administrators have been instructed to wave any proof of hardship requirements and take individuals at their word during this time.
- Loan amount rules for retirement plans have also been modified.
Under the CARES Act loans that are made between March 27th and Dec. 31, 2020, can now be a max loan amount of $100k or 100% of your vested balance, whichever is lower. That is double the previous allowed amount.
For those who have had the fortune of not needing any of these options, not taking any action may be your best choice. With the pullback we’ve seen in the stock market, having the ability to leave you’re your funds invested in your retirement accounts can be a benefit. Most likely, with the market losing ground, your retirement account has lost value as well. Selling now and taking the money out only locks in those losses but if you have the ability to wait, then you have the opportunity to regain your account value if and when the markets turn around.
While we all are experiencing the effects of COVID-19 in some way, our hope is that this information is helpful in providing options as you continue to care for yourself and your loved ones. We are always here to answer your questions as we know that everyone’s situation is different and unique. Please feel free to reach out and we’ll be happy to help.