3 CARES Act Highlights for your Retirement Accounts
The Coronavirus Aid, Relief, and Economic Security, known as the CARES Act, was signed into law on Friday, March 27, 2020 and has several provisions that relate to your retirement accounts. Below are 3 highlights and how they can impact your retirement accounts.
RMDs are Suspended for 2020
The required minimum distribution, or “RMD,” that must be taken annually from your retirement accounts if you are over 72 (previously 70 ½) has been suspended for 2020, including inherited IRAs.
This provision was included to alleviate the concern that investors would be forced to sell investments at bargain prices to meet the requirement. Those who take their RMD because it’s a requirement, not for cash flow, should consider taking advantage of assets continuing to grow tax-deferred for an additional year.
Typically, withdrawals from a retirement plan for individuals under 59 ½ are subject to a 10% penalty. The CARES Act waived this penalty on IRAs and defined contribution plans for participants who are experiencing financial hardship.
Coronavirus related distributions can be taken for the following reasons:
- You, your spouse, or dependent has been diagnosed with the coronavirus.
- You’ve experienced adverse financial consequences as a result of being quarantined, furloughed, laid off, or your work hours have been reduced.
- You’re unable to work because of a lack of childcare.
- You’ve had to close or reduce the hours of a business as a result of the virus.
- You’ve been financially impacted by other factors determined by the treasury secretary.
While the penalty on withdrawals has been waived, withdrawal amounts are still subject to tax. If you repay the amount within three years you can avoid paying those taxes. If not, the taxes on the withdrawal can be spread over three years.
Loan Amount is Doubled
Loan limits from retirement plans has been increased from $50,000 to $100,000. Also, the rule that loans may not exceed half of the vested balance has been removed.
Do note that taking a withdrawal or loan from your retirement account is something you should think twice about. Dipping into retirement accounts early should only be done when needed, especially when the market is down.
How We Can Help
Coronavirus continues to affect all aspect of our lives. The CARES Act hopes to alleviate some of the economic burdens that Americans are facing. Just as the news continues to have updates, the IRS will be clarifying a lot of what is contained in the CARES Act, so be sure to check in with the IRS guidance at irs.gov/coronavirus for the most up to date information.
We understand that this is an incredibly hard time for everyone. The GGM team is working diligently to keep operations running smoothly in these uncertain times. Please do not hesitate to contact your advisor with any questions regarding your portfolio, or how these provisions could affect you.