With plenty of uncertainty surrounding the Covid-19 pandemic it’s hard to know how to control certain elements. But with the recently passed CARES Act there are some opportunities on the financial planning front that may help people better weather this storm. The chart below outlines some key takeaways. One item we find particularly relevant is how this impacts required minimum distributions (RMDs) from retirement accounts.
As part of the SECURE Act, signed into law in late 2019, the starting age for RMDs from retirement accounts, such as IRAs and 401ks, was bumped from 70 ½ years old to 72 years old. While many Americans depend on RMDs as a crucial element of their retirement income, it is nice to know there is flexibility for those under the age of 72, should they not need to pull from retirement assets to support their livelihood.
For those people that have already started taking RMDs there is a new option to think about under the more recently passed CARES Act. The Government has suspended required minimum distributions in 2020. This applies to individual retirement accounts and those that have inherited IRAs. Retirees that depend on their RMDs may not want to stop taking the distributions. But for those that have other sources of income or sufficient non-retirement assets to get by, it might make sense to not take your RMD for 2020 and allow your retirement accounts to recoup losses inflicted during this downturn.
There is also the matter of taxes. When RMDs are taken the distribution is treated as taxable income. Foregoing the 2020 distributions reduces this taxable income, potentially leading to a big savings on the tax front.
For distributions made prior to all this happening, you still have the option to add those funds back into the retirement account as a 60-day rollover. If you made your distribution longer than 60 days ago, say in January, your options are more limited. Note that this 60-day rollover option is not applicable to inherited IRAs.
There are indeed opportunities to make financial planning lemonade. That being said, we know that everyone is unique so contact us to walk through your personal circumstances and help find the best solution for you.