The recently passed Coronavirus Aid, Relief, and Economic Security Act, or the CARES Act, has introduced many provisions that clients should consider. Below, we have highlighted one section of the act that outlines the potential benefits and resources clients can utilize when considering their retirement accounts.
RMD’s are suspended for 2020
Required minimum distributions will not be required to be distributed for 2020. This also applies to clients who were set to begin taking their first RMD (including those who may have delayed from 2019 until April 1, 2020), and to Inherited IRAs.
Withdrawals from IRAs
If you are younger than age 59½ you can take an early withdrawal, of up to $100,000, from your IRA and avoid the 10% penalty. Income taxes will still be due on this withdrawal at your ordinary income tax rate. The tax liability associated with this withdrawal can be paid off over a maximum of three years. Additionally, you have three years to repay this withdrawal back to your IRA and reduce the associated tax liability pro-rata. This provision applies to those who have been affected by the Coronavirus.
Withdrawals from 401(k), 403(b) or 457(b)
Withdrawals from 401(k)s, 403(b)s or 457(b)s are technically either loans or distributions against the assets in those accounts. The maximum loan amount has been increased from $50,000 to $100,000. The rule stating that a loan may not exceed half of your vested balance has also been removed. New and existing loan payments can be deferred for up to one year. If you are younger than age 59½ and choose to take a distribution of up to $100,000, the 10% penalty will not apply. You will also have three years to pay back this distribution to help alleviate pressure from its corresponding tax liability on a pro-rata basis.
Over the next few weeks, the IRS will clarify and provide guidance for a lot of the provisions in the CARES Act. Before you decide to act on any of these provisions, please consult with your advisor and tax professional.
*This article is provided for informational purposes only and should not be interpreted as investment advice.