On March 27, 2020, the White House and Congress came to an agreement and passed the largest relief package in recent United States history, called the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Coronavirus has impacted households across the nation in various ways; the CARES act hopes to address issues regarding unemployment, small business, and healthcare, among others. At Hungerford Financial, we've had questions around the new bill and how the market, economy, and cash flow changes affect individual retirement planning. Here are some of the highlights of the the bill pertaining to retirement accounts and tax changes.
Extended deadline for 2019 IRA contributions
Because the tax filing deadline was moved from April 15, 2020 to July 15, 2020, the CARES act addresses retirement contributions for IRA's and Roth IRA's to coincide with these dates. Therefore, households will now have until July 15, 2020 to make contributions to their IRA's. Historically, there has never been an extension to the contribution deadline, even if the taxpayer filed for a tax filing extension.
The IRS confirmed this here: https://www.irs.gov/newsroom/filing-and-payment-deadlines-questions-and-answers
RMD's waived for 2020
Required Minimum Distributions (RMDs) are suspended for all of 2020. Regardless of whether you have your own retirement account or an account you inherited from someone else, you can avoid taking any RMDs in the year 2020 without any penalties. Of course, in some instances people will have declines in income in 2020 that may push them into lower marginal tax brackets, so it may make sense to take distributions up to a point anyway.
Still, this is an important thing to emphasize in particular to anyone turning 72 and older this year. For those individuals who have recently taken taken an RMD from an IRA but didn’t really want to, they can roll it back into the IRA within 60 of receipt of the money.
Additional relief for retirement accounts
According to Ed Slott, "The new act waives the 10% early distribution penalty on up to $100,000 of 2020 distributions from IRAs and company plans for “affected individuals”. The tax would be due, but could be spread evenly over three years, and the funds could be repaid over the three-year period."
Furthermore, "While the 10% early distribution penalty is waived, the amount withdrawn is still subject to tax and it removes funds that may be needed for retirement. This should be used only as a last resort." The CARES act also includes a provision to increases the maximum amount of plan loans to the lesser of $100,000 (reduced by other outstanding loans) or 100% of the account balance.
If you have questions regarding the new bill, your retirement, or you would like to discuss strategy throughout this downturn, please contact Hungerford Financial at 616.551.5452.
About the Author:
Michael Steinebach is a Financial Advisor serving the Greater Grand Rapids area. Born and raised in Rockford, Michigan, Michael is a focused on helping individuals in the community make prudent choices with their money.