The Coronavirus Aid, Relief, and Economic Security (CARES) Act was recently signed into law this past week. It is 800+ pages and focuses mainly on providing relief to individuals and businesses affected by the economic shutdown due to the virus. There are also a few provisions that affect our retirement accounts. Here is a quick summary of those changes:
- For 2020, you won’t have to take a required minimum distribution from your IRA. This includes inherited IRAs. If you don’t need the money, not taking an RMD will help lower your taxable income for 2020 and allow your money to recover from the market drop while remaining in your IRA.
- During this year, you will be able to take out up to $100,000 from your IRA without having to pay the 10% penalty. Normally, the 10% penalty applies to IRA owners under the age of 59.5. You will also be able to spread the taxes owed on that distribution over a 3-year period. You can also put the money back into your IRA during that 3-year period if you didn’t need it and avoid taxes on that amount.
- Until the end of the year, you can take a loan from your 401k up to $100,000. Normally, loans are capped at 50% of your balance or $50,000, whichever is less. These limits are waived for this year. Your plan must allow loans.
- If you already had a 401k loan out and it was supposed to be paid off by the end of this year, you will have an extra year to pay it off.
- Since the date to file your income taxes has changed to July 15, 2020, you have until that date to contribute to your IRA for 2019.
In order to qualify for these modified distributions or loans, they must be coronavirus-related. The requirements are very broad so it will be relatively easy to qualify for these new provisions.
Stay safe and please let me know if you have any questions. Thanks.
Joe Baker, CFP®
Baker Asset Management, LLC
joebaker@bakerassetmanagement.com
