We wrote a couple of weeks ago about the CARES act in another pun-titled post called “Care for a summary?” It contained a great summary of the bill and what is contained within. For obvious reasons, much of the focus on the CARES Act has been on the cash payments and the interest free (and potentially forgivable) loans. This week, I wanted to focus on the portion of the bill that gives some good options/solutions within the retirement plan space.
- Required minimum distributions are waived for 2020 – this includes inherited IRAs. The idea here is to not force investors to take out money when their portfolios have been hit so hard with losses. Also, keep in mind that the new age to start taking RMDs has moved from 70.5 to age 72.
- NOTE: You can return your RMD for 2020 if you’ve already taken one. Some investors have already taken their RMD prior to the passing of the CARES Act.
- You can take up to $100,000 out of an IRA for COVID-19 related purposes and avoid the 10% early-withdrawal tax (often referred to as a penalty) usually applied the withdrawal is taken before age 59.5
- NOTE: You will still owe income tax on this withdrawal if you aren’t able to recontribute the money within three years of taking the distribution.
- NOTE 2: You can spread the income tax hit over a three-year period. For example: If you take out $100k in 2020, you can apply the $33,333 to the 2020 tax year, $33,333 to the 2021 tax year, and $33,334 to the 2022 tax year.
- You can take a loan from your work plan for up to $100,000 or 100% of the value – Previously this was limited to $50,000 or 50% of the value, whichever is less. The loan needs to be made within 180 days of the enactment of the act (March 27).
- NOTE: a loan from your work plan does NOT count as taxable income. So, this may be a more favorable option than withdrawing from an IRA (assuming the IRA funds don’t get paid back within 3 years)
- NOTE 2: You do not have to start repaying your loan until after 12/31/2020. Keep in mind that this is still a loan, so you will have to repay yourself (into your plan) down the road.
The distribution options above specify “for COVID-19 related purposes.” Those include a “COVID-19 diagnosis for you, your spouse or dependent, and financial hardship as a result of business closures, reduced work hours, lay off, furlough, lack of child care or other factors as determined by the Treasury Secretary.”
I trust that most of you are working or simply staying at home for the most part. The same is true at my house, and the kids and the dog (and I guess our kind-of-jerky cat) are honestly loving it. Ignorance is bliss, right? For us, the decent weather has been a silver lining during this difficult time. The trampoline and disc (frisbee) golf basket (who knew?) have been very popular.
Daisy, our French Bulldog and featured in many of my blog posts, has certainly been enjoying the extra attention. A recent pic of her from Easter Sunday pretty much sums up how I am feeling about the quarantine:
We at Meridian hope you are all staying healthy and taking appropriate measures to flatten the curve!