The CARES Act and Your IRA: What you need to know
There is no doubt that COVID-19 has caused myriad challenges for everyday Americans. In an effort to support both individuals and businesse affected by the pandemic, the Corona Aid, Relief and Security Act (CARES Act) was signed into law.
Although broad in its scope, the CARES Act has several provisions related to your retirement savings.
FOR INDIVIDUALS SUBJECT TO REQUIRED MINIMUM DISTRIBUTIONS (RMDs):
For anyone who is 70 ½ or above, RMDs are not required for 2020. The logic here is that the suspension of RMDs in 2020 will help taxpayers whose IRAs have been directly affected by market conditions and/ or by the effects of this pandemic.
Here are key points to consider:
- If you delayed your 2019 distribution to March 31 then you are not required to take that either.
- If you took your 2019 IRA in the last 60 days, then you can roll it over to another IRA with 60 days with having to pay income tax.
- Inherited RMDs are not eligible for this rollover.
If your taxable income comes from multiple revenue streams, then opting not to take your RMDs for this year has several advantages. It will increase the distributions for subsequent years, and could be more advantageous for taxes.
On the other hand, if your primary source of income comes from an RMD, then it may be better to take the distribution for this year, as you could benefit from a lower tax bracket.
It’s also possible that these new provisions may make the Roth IRA conversion a better option for you in 2020.
There are many factors to consider and each person’s circumstances are different, so it’s always good to speak to your financial advisor before you make any final decisions. And given the speed of our current circumstances it may be wise to talk to them sooner rather than later.
FOR INDIVIDUALS WITH IRAs:
If you have been directly affected by the corona virus and own an IRA, then CARES act provides several provisions to help you during this difficult time.
Here’s the breakdown:
1)The CARES act identifies as person who have been affected as someone who:
- Have been quarantined
- Have been furloughed or laid off
- Are unable to work due to childcare constraints
- Have closed businesses or reduced business hours
- Any other factors determined by the Secretary of the Treasury
2)For those who qualify:
- $100,000 can be taken out of an IRA and report its distribution evenly over 2020, 2021 and 2022.
- If you are under 59 ½ you will not be subject to the 10% excise tax on early withdrawals.
- You will not have to pay tax on the distribution if you repay it to an IRA or another retirement plan within three years.
As mentioned earlier, there needs to be careful thought and reflection when it comes to the decisions you make about your retirement savings and the provisions that may be available to you through the CARES Act. In the case of using your IRAs it’s important to think about the effect that may have on your income taxes.
For example, if liquidated some of your IRAs put you into a higher then it may not be advantageous to use these assets. However, if you anticipate lower incomes for this year and the subsequent three years, then it may be wise to use some o
If your IRAs in this current situation.
No matter your options or choices when it comes to RMDs or your IRAs, it is always a good idea to speak to a financial advisor. They will be able to assess your specific needs and circumstances while also providing the knowledge and insight necessary to make tactical decisions about your finances and your financial future.
Yes, these are uncertain times, which is why we must all be careful and strategic about how we manage our finances.
To find out more about the CARES Act and how it may help you. Talk to a CRNA Financial and Retirement Advisor.
The more you know, the better decisions you’ll be able to make.