On March 27th President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) meant to address the economic fallout of the current pandemic in the United States. Included in the $2.2 trillion dollar stimulus package are provisions changing the rules for retirement accounts. As many of you own retirement accounts which are impacted by these provisions it is important for you to understand the potential opportunities which are now available.
What are the benefits?
- The deadline for contributions to retirement plans have been extended. Because the final due date for filing tax returns has been postponed, this includes the ability to make contributions to an IRA for 2019 until July 15th, 2020.
- The law suspends, for 2020, the Required Minimum Distribution (RMD) the government requires people take from their qualified (tax-deferred) retirement accounts. As most retirement plans have decreased in value since December 31, 2019 (when RMDs for the calendar year 2020 are calculated), by taking a distribution in 2020 you would be paying more income tax and selling assets at lower values. With this new legislation, you now can retain tax-deferred savings until at least 2021.
- The law includes a wavier of the early withdrawal penalty. The waiving of the 10% early withdrawal penalty on distributions taken before a plan participant turns 59.5 allows those who have experienced financial hardship because of Coronavirus, quarantine or other factors can withdraw up to $100,000 in 2020 from a retirement plan without incurring the 10% penalty. Keep in mind these withdrawals are still subject to income tax (you can elect to spread the income over a 3 year period beginning 2020). In the event you take the distribution and end up not needing some or all you can repay back to your retirement plan within 3 years of receipt.
What types of accounts are impacted by the provisions?
- Inherited IRA
- Roth 401(k)
- Profit Sharing Plans
I’ve already taken an RMD this year, can I put it back in my account?
Yes – with a caveat – if you redeposit the withdrawal back into the account within 60-days of having taken it then you can put the RMD back. Keep in mind you will have to replace the taxes that were withheld from the distribution as well.
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