Recently, Congress passed and President Trump signed into law the "CARES Act." Among policymakers, the bill is known more formally as the Coronavirus Aid, Relief, and Economic Security Act.
Much of the law is aimed at providing economic relief for businesses, but some parts of the act changed IRA and retirement-plan provisions. The bottom-line of it all? Many of these retirement changes can directly affect your ability to access money and bolster your income.
These changes will have a large effect, regardless of whether you are retired or are still working toward your golden years. In a Forbes.com column, Bob Carlson, editor of Retirement Watch newsletter, wrote about some of the most important changes.
Here’s a look at some major changes that might be coming to your retirement, courtesy of the coronavirus economic relief legislation that became effective on March 27th.
Required Minimum Distributions on Hold
Required minimum distributions are waived for 2020. This waver on required minimum distributions applies even to inherited IRAs and to retirees who are already 70.5 or older (and paying RMDs).
This could potentially put thousands of dollars in your pocket for the year and possibly even land you in a lower tax bracket, depending upon your financial circumstances.
The change doesn't benefit just those who were looking at RMDs in 2020. It's also good news for those who turned 70.5 last year and waited until April 1st of this year to take their RMD for 2019.
Passed some months ago, the SECURE Act made changes to required minimum distributions for retirees. It shifted the starting age for RMDs to 72.
However, those who turned 70.5 in 2019 were still on the hook for taking withdrawals from their IRAs, as per IRS tax rules. What if you have already taken your RMDs for 2020? The distribution will still count as part of your AGI and will be taxable.
If you find yourself in a lower tax bracket for the year and the coronavirus has affected your income, you may want to consider taking a distribution to make up lost ground anyway.
Some rules might benefit you. For example, you have a 60-day window for returning your distribution to your IRA or paying it into another qualified plan. In either case, you wouldn't owe taxes on the amount, according to Bob Carlson.
Since tax rates are still on sale, you might also consider a Roth IRA conversion if it makes sense for your situation. This could pay off in tax savings for years to come.
Emergency Withdrawals Permitted
You can take emergency withdrawals from an IRA or a 401(k) plan for coronavirus costs. These costs could include medical bills, lost wages, and earnings. They also cover physical measures that you might have to take to protect yourself from the virus.
You must be a retirement saver who was negatively affected by the coronavirus pandemic, according to Emily Brandon, senior editor of U.S. News Money. But the new law will allow you to withdraw up to $100,000 from a 401(k) plan, IRA, or similar type of retirement account.
This waiver applies to distributions from Jan 1, 2020 to December 31, 2020. For this limited time, early withdrawal penalties on money taken from your qualified account before age 59.5 are suspended.
Normally, the early withdrawal penalty of 10% is levied on the withdrawn balance, along with federal income tax. This waiver will last according to dates above.
The federal income tax burden due on the withdrawal can be paid in a three-year window. But the distributions from your IRA or qualified plan must be recontributed to your retirement account also within three years.
Extended Deadline for Retirement Savings Contributions
The deadline for making a 2019 contribution to your IRA has been extended to July 15, 2020. This is because the filing deadline for federal tax returns has been extended to July 15th.
Increased Loans From 401(k) Plans
Retirement plan loan rules also changed. From the date of law becoming effective (March 27th) to December 31st, 2020, permitted loan amounts from 401(k) plans have increased.
Normally the loan maximum is $50,000 or 50% of your vested account balance. During the timespan mentioned above, the maximum loan amount can go up to the lower of $100,000 or 100% of your vested account balance.
The due date for repaying the loan is pushed out for one year.
All of this can be helpful for many households. But who is eligible? In his Forbes.com column, Carlson writes:
"To qualify for these IRA and retirement plan changes, a loan or distribution must be coronavirus-related. That means that the individual, the individual’s spouse or a dependent must have been diagnosed with COVID-19. Or the individual must experience adverse financial consequences as a result of being quarantined, furloughed, laid off or having work hours reduced due to COVID-19. Also eligible are individuals who were unable to work due to lack of child care as a result of COVID-19. An individual whose business was closed or had reduced operating hours as a result of COVID-19 also is eligible. A retirement plan administrator can rely on an individual’s certification that he or she meets the requirements."
Don't Make Hasty Decisions
While these measures can be very beneficial, you still need to be sure that this makes sense for your future retirement outlook. Will you have enough savings to produce the future income you need?
Think hard before you borrow an extra $50,000 from your 401(k) plan. But if you truly need to get your hands on some cash, then your money is now much more accessible.
Financial needs right now can be of primary importance. But any decisions about tapping into your retirement savings needs to be weighed against how it might affect your future retirement income prospects.
Ask for Your Advisor's Guidance
Don't make any hasty financial decisions on your own. Be sure to consult your financial advisor for more information on the new tax breaks in the CARE Act and how they can affect you, both now and in the future.
Your advisor may have some ideas that haven't occurred to you that could result in both tax savings and increased income down the road.
What if you are looking for a financial professional to help guide you? No sweat. Help and answers are just a click away at JenniferLangFinancialServices.com.
Connect with someone directly. You can request an initial appointment to discuss your situation, concerns, and goals.