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CARES Act: Retirement Impact

by Tull Financial Group | March 31, 2020 | Financial Planning, Retirement Planning

For the purpose of this blog, we want to identify some of the provisions of the CARES Act that may impact you and aspects of your retirement. Please know that these changes are very new, and that we are proactively working to identify planning opportunities for each of our clients. We have summarized the some of the major changes:

Required minimum distributions waived for 2020 (Sec. 2203):

  • For those scheduled to receive a required minimum distribution (RMD) for 2020, it is no longer required to distribute. Please know that you can still take distributions from your retirement accounts if needed, as before.
  • If you are scheduled to take an RMD in 2020, but you do not need the funds for living expenses, you may want to consider not taking a distribution from your retirement account this year.
  • If you have already distributed all or part of your RMD this year, there are two options available to “undo” the distribution:
    • If you made a distribution within the past 60 days, you may be able to make an indirect rollover, assuming one was not made within the past 365 days.
    • If you made a distribution(s) more than 60 days ago, you may be eligible to roll any distribution(s) (up to $100,000) that occurred in 2020 (beginning on January 1, 2020) back into your retirement account, if you meet certain qualifications as described in the following section.
    • The above does not apply to Inherited IRA distributions, which cannot be rolled back into your Inherited IRA.
  • Please note that if you choose not to distribute your 2020 RMD amount, it may be beneficial to make a Roth conversion this year.

Distributions from retirement accounts (Sec. 2202):

  • The act provides certain tax benefits for distributions made in 2020 (up to $100,000) by an individual who has been impacted by the coronavirus. Qualifications for a Coronavirus-Related Distribution are for individuals impacted in some of the following ways:
    • The individual, spouse, or a qualifying child has been diagnosed with COVID-19,
    • the individual has undergone negative financial circumstances due to being quarantined, laid off, or a reduction in work hours because of COVID-19,
    • the individual is unable to work because of lack of childcare, or
    • the individual owns a business that has closed or has reduced its hours.
  • You will have three years from the time you take the distribution to “re-contribute” the amount you distributed from the plan (disregarding the annual contribution limit). Any amounts not re-contributed to your retirement plan will be included as gross income proportionally over the next three years.
  • The CARES Act will provide an exception for retirement plan distributions normally subject to the 10% penalty, up to the $100,000 limit.
  • Retirement accounts eligible for these temporary distribution rules include 401(k) plans, 403(b) plans, 457 plans, and IRAs.

Loans for qualified retirement plans (Sec. 2202):

  •  The CARES Act will increase the limit on loans from employer-sponsored retirement plans, not treated as distributions, to the lesser of:
    • $100,000 (previously $50,000), or
    • 100% of the vested balance of your retirement plan (previously 50% of the vested balance), or $10,000, whichever is greater.
  • Outstanding retirement plan loans with due dates between the date of enactment and 12/31/2020 have been delayed one year for qualified individuals.

The content above is for informational purposes only. If you would like to discuss the RMD changes for 2020, or are considering a retirement plan distribution or loan, please call our office at (757) 436-1122 to speak with an advisor regarding your options.