The CARES Act and What It Means for Your Retirement
Several provisions within the CARES Act you may want to consider for IRAs and employer retirement plans.
By: Edward Jones
If one of the following situations applies to you, you may be eligible for early withdrawals or increased loan amounts from your retirement plan:
• You, your spouse, or a dependent is diagnosed with COVID-19; or
• You experience adverse financial consequences as a result of COVID-19, including quarantines, layoffs, business closures or child care responsibilities.
No penalty on early withdrawals
Typically, you would have to pay a 10% early withdrawal penalty for withdrawals from retirement accounts before age 59 ½. Under the CARES Act, this penalty is waived for eligible individuals for up to $100,000 of withdrawals taken in 2020. However, income tax on traditional retirement account distributions would still be owed but could be paid over a three-year period.
You also have the option to "recontribute"
Increase of retirement plan loan limit
If you qualify for COVID-19 relief under the CARES Act, the amount you can borrow from a qualified retirement plan has been increased to the lesser of $100,000 or 100% of the plan participants vested balance. Any increased loan amount must be taken by Sept.23, 2020. However, the deadline to make payments on already-outstanding retirement plan loans due between March 27 and Dec. 31, 2020 can be extended by one year.
Required minimum distributions (RMDs) are waived for 2020
The good news with this change is that you do not need to meet COVID-19 qualifying criteria to waive RMDs for 2020.
Under the CARES Act, your RMD is no longer required for 2020. This also applies to RMDs due in 2020, but attributable to 2019. If you have already satisfied the RMD due in 2020, there are different ways you may be able to put back this distribution, each with its own limitations.
Work with your Edward Jones financial advisor to consider these key aspects of the CARES Act as part of your broader financial strategy. As with any decision that could involve tax implications, consult with your tax professional on considerations and impacts to your specific situation. Your financial advisor can partner with him or her to provide additional financial information that can help in the decision-making process.
Edward Jones - Mae Luchetti