As the nation continues to inch closer to finding a new normal while battling COVID-19, many are still working through understanding the impact of the Coronavirus Aid, Relief, and Economic Security (CARES) Act on their finances.
The CARES Act contains provisions concerning retirement funds to help those managing economic uncertainty related to the coronavirus outbreak. These include allowing individuals to access retirement accounts to cover virus-related expenses without penalty, as well as waiving Required Minimum Distributions (RMDs) for the year 2020.
“What we’re expecting is as the legislation settles, many aspects of the CARES Act will come to the forefront, and the retirement portion is a big part,” says Regions Wealth Planning Executive Bryan Koepp, JD, CFP®, TEP.
Wealth advisors in Regions Wealth Management have continued to provide needed guidance and support to clients throughout this period of social distancing. Utilizing phone meetings and videoconferencing platforms, they remain accessible to client needs and questions, including those regarding the CARES Act. Every day, they are in contact with clients fielding inquiries and advising on important decisions regarding the act.
The retirement portion is a big part.
Bryan Koepp, Regions Wealth Management
Koepp recommends that when it comes to the special rules contained in the CARES Act that address accessing Individual Retirement Account (IRA) funds, it is best to evaluate them with your Regions Wealth Advisor and your tax professional.
“While it’s always case-by-case, I’ve shared with clients the same message I shared with them during the stock drop in 1987 and the financial crisis in 2007 – if you can, stay the course with your IRA,” added Regions Wealth Management’s John Poole, CPA, CFP®, who specializes in IRAs. “According to the act, an IRA owner can take up to $100,000 out of retirement funds for COVID-19 expenses, but this should be a last resort; even though the legislation makes you exempt from the early distribution penalty, you are still liable for income taxes on traditional IRA withdrawals. If you can help it, don’t take it out.”
Of course, depending on your age, your tax rate, your individual financial situation, and current needs, it may be a source of funds for immediate expenses.
From early distribution penalties to required minimum distributions, Poole provides further clarity into the retirement-related portions of the more than $2 trillion economic relief package:
Q: I am an owner of a Traditional IRA and under the age of 59 ½, and I want to take a distribution from my IRA. Will the distribution be subject to the 10% Early Distribution Penalty, or is there any relief provided by the enactment of the CARES Act?
A: An individual may take up to $100,000 as a coronavirus-related distribution, and that distribution would not be subject to the IRS 10% early distribution penalty. A coronavirus-related distribution is defined as any distribution made on or after January 1, 2020, and before December 31, 2020, by an individual who is diagnosed (or his or her spouse or dependent is diagnosed) with SARS-CoV-2 or COVID-19 using a CDC-approved test, or an individual who experiences adverse financial consequences or other disadvantageous circumstances as determined by the Secretary of Treasury. The individual may elect to pay all the income taxes on the distribution in the current tax year or include the distribution in taxable income ratably over a three-year period. In addition, the individual could do a tax-free rollover of some or all of the distributed amount within a three-year period.
Q: I am an owner of a Traditional IRA that has Required Minimum Distributions calculated for 2020. Do I now have to take those RMDs?
A: The Coronavirus Aid, Relief, and Economic Security (CARES) Act removed RMDs for the year 2020. The owner of a Traditional IRA does not have RMDs for this year.
Q: What is the deadline for making a Prior Year IRA Contribution?
A: Because the due date for filing federal income tax returns has been postponed to July 15, the deadline for making Prior Year Contributions (for Tax Year 2019, made in 2020) to a Traditional or Roth IRA for 2019 is also extended to July 15, 2020.
“The waiver of the RMDs for IRA accounts in 2020 has really helped many to keep those funds inside of IRAs, to allow assets to recover,” Poole says. “The next level to deal with is cash flow; if there’s enough cash to utilize without distributions from an IRA account, leave the cash in the account and invest those funds to recover more of the account value.”
“We can address cash flow concerns through wealth strategic planning through the completion of a stress test on where you are today and where you want to go,” Koepp adds. “If you are where you want to be, that’s great; if not, let’s plan to get you where you need to be based on your goals and aspirations. It’s never too late to start planning.”
If you have more questions regarding the CARES Act and your IRA, get in contact with a Regions Wealth Advisor today. Additionally, Regions Asset Management offers numerous insights into coronavirus and the market; visit online to learn more.
John Poole (left) and Bryan Koepp (right) of Regions Wealth Management
This information is provided for educational and general marketing purposes only and should not be construed as a recommendation or suggestion as to the advisability of acquiring, holding or disposing of a particular investment, nor should it be construed as a suggestion or indication that the particular investment or investment course of action described herein is appropriate for any specific investor. In providing this communication, Regions is not undertaking to provide impartial investment advice or to give advice in a fiduciary capacity.
This information should not be relied on or interpreted as accounting, financial planning, legal or tax advice. Regions encourages you to consult a professional concerning your specific situation and visit irs.gov for current tax rules.