The CARES Act and Your Retirement

We’ve all heard about the Coronavirus Aid, Relief and Economic Security Act (CARES Act) the federal government recently passed to help provide funding, loans and tax provisions to provide economic relief. The CARES Act also includes changes that could impact retirees.

Here’s a couple of things you need to know:

• Required Minimum Distributions (RMD’s) – RMD’s aren’t required for 2020. These include distributions from 401(k)’s, inherited retirement accounts, 403(b)’s and 457(b)’s. This provision is very broad and is not a push off to 2021 – you will not have to take two RMD’s next year. If you have already taken an RMD for 2020, you may be eligible to roll the money back into an IRA if it’s within the 60 day window, but note that the “once per 12 month period” rule applies. Also, 2019 RMD’s are waived for those who turned 70½ in 2019 and had until April 1, 2020 to take their RMD’s. The benefit here is that by waiving the RMD’s, you could leave your account(s) alone for another year and allow it to potentially recover from the market downturn.

With the Tax Cut and Jobs Act and the decline in the market, many retirees are experiencing lower taxes, and now with the RMD suspension, it might be a good time to do Roth conversions.

• Coronavirus Related Distributions – The CARES Act waives the 10% early distribution penalty on up to $100,000 of 2020 distributions (on qualified retirement plans such as 401(k)’s and IRA’s) for “affected individuals”. For those over age 59½, the 10% early distribution penalty is not an issue, but for those facing financial stress due to being laid off or furloughed, the ability to take a distribution now could be helpful.

It’s important to note that while the 10% penalty is waived, regular taxes still apply, so be sure to have a conversation with your tax advisor before you take any distributions.

Many people are concerned with the economy, and the stock market may appear to be in bad shape right now, but remember, this isn’t the first market decline we’ve faced – nor is COVID-19 the first health crisis to impact our economy. We don’t know how long the recovery will take, but don’t drive yourself crazy with checking your accounts (IRA, 401(k), stocks, etc.) every other day. The best thing you can do is to stay calm, adjust your plans as necessary and remember that this too shall pass.

I understand that this is a scary time, so please feel free to contact our office at 801-465-6990 if you have any questions or concerns, we’d love to help!

Sources:

https://www.natlawreview.com/article/summary-cares-act

https://www.forbes.com/sites/jamiehopkins/2020/04/10/5-ways-the-cares-act-impacts-retirement-planning/#f1694c7676af

https://www.financial-planning.com/news/new-cares-act-would-bring-tax-relief-for-retirement-accounts