The $2 trillion economic relief plan impacts almost every layer of American life, including your retirement plan.
Here are some important components all workers currently saving for retirement and retirees need to know.
Required Minimum Distributions are suspended for 2020 for IRA’s and workplace plans.
The formulas for these distributions were calculated on 12/31 when the market was much higher than it is currently, so investors would have been forced to sell stocks that had substantially depreciated. RMD’s are typically mandatory, but not in 2020. The suspension gives additional time for the market to potentially recover.
The new rule even enables those over the age of 72 who are more fortunate and have significant outside assets to avoid their forced distributions as well.
At this moment, it’s unclear if inherited/beneficiary IRA RMDS are suspended since the IRS has yet to give definitive guidance on this issue.
Up to $100,000 will be allowed to be withdrawn penalty-free from workplace or I.R.A. accounts
The package eliminates the 10% penalty for individuals under 59 1/2. Regular income taxes still need to be paid on withdrawals but can be spread out over three years from the date of the original withdrawal.
Another benefit is that you can reimburse your withdrawals before the three years are up. This amount is far above the standard contribution rates. Usually, it’s a bad idea to prematurely withdraw funds from a retirement account, but if a matter of survival, this may serve as a lifesaver for many people as a bridge loan until the economy rebounds.
This carve-out only applies to coronavirus-related withdrawals. According to the New York Times:
You qualify if you tested positive, a spouse or dependent did or you experienced a variety of other negative economic consequences related to the pandemic. Employers can allow workers to self-certify that they are qualified to pull money from a workplace retirement account.
Borrowing limits have been increased for workplace plans
The limit has been increased from $50,000 to $100,000 for 180 days after the bill passes. In order to take this loan, you’ll need to prove that your life has been affected by the Coronavirus. In addition, if you already have a current balance and were obligated to pay it back by 12/31 you’ll get an additional year, but you can’t borrow from your IRA.
Source: Financial Planning
The stimulus package created many new possibilities for leveraging retirement accounts – especially for families desperate for funds to keep a small business alive or cover loss of employment. For those that might be ok financially, this package offers additional tax planning strategies. If you have any questions relating to your retirement funds or other financial questions during these challenging times, please give us a call.