The $2 Trillion CARES Act & Your Retirement

CARES Act & Your Retirement

You may be aware that the CARES Act was just signed into law on Friday, March 27th. So I’d love to cover some aspects of the CARES Act & your retirement.

It’s a $2 trillion stimulus package designed to support our economy which is current on hold due to CoVid-19.

Before I continue, I’d first ask you to consider just how much a trillion dollars is…

Let me ask you… how many years is 1 trillion seconds?

Scroll to the bottom of this article for the answer.

You probably guessed too low. I know I sure did.

Anyway, back to the CARES Act… it contains some retirement-relevant information that I wanted to highlight for you.

And thanks to those of you who’ve already reached out to me about some of the following…

First up, Required Minimum Distributions (RMDs) are waived for 2020.

If you’re required to take an RMD in 2020, you can skip this year’s distribution if you want to.

And considering that 2020 RMDs are based on the value of the retirement account on 12/31/2019 (when the market was a lot higher and your account was probably worth more), this is a potentially helpful part of the CARES Act.

In fact, if you’ve already taken your 2020 RMD and still want to waive it for this year, you may be able to return the payment to your retirement account.

There are some specifics around how and when you can return an RMD you’ve already received this year. Let me know if you have questions and I’ll be glad to help you sort out the answers for your specific situation.

Another retirement-specific feature of the CARES Act is that non-designated retirement account beneficiaries can “ignore” 2020 for purposes of the 5-year rule.

You may recall in my coverage of the SECURE Act not too long ago, I mentioned how non-spouse retirement account beneficiaries will now be required to distribute their inherited portion of a retirement account by the end of the 10th year after the death of the account owner.

This is applicable assuming the non-spouse beneficiary is “designated” — in simple terms, this means it’s a person with with date of birth. As opposed to a trust or other entity.

For non-designated beneficiaries, they’re required to distribute their inherited portion of a retirement account over 5 years.

With the new CARES Act, they can basically ignore this year (2020) for purposes of this 5-year rule.

This is a bit of an edge case, but I wanted to make sure you’re aware as it deals specifically with retirement accounts.

And there’s some CARES Act language addressing retirement plan distributions.

You may be able to take a “Coronavirus-Related Distribution” in 2020 of up to $100,000 from a retirement account, including IRAs, employer-sponsored plans like 401k, etc.

These special distributions can be taken by an individual who has been impacted by Coronavirus. The definition of “impacted by Coronavirus” is pretty broad, and you can see the details here.

If you’re eligible and take a retirement account distribution in 2020, you may be able to take advantage of several tax breaks on the distribution.

They include:

  • Avoiding the 10% early withdrawal penalty if you’re under age 59 1/2
  • Not subject to mandatory withholding payments
  • Eligible to be repaid over 3 years
  • Income may be spread over 3 years

There’s A LOT more to the CARES Act, and if you want to read more, here’s a comprehensive post by Jeff Levine, CPA.

And without any further ado…

Just how many years is 1 trillion seconds?

Would you believe it’s 31,709+ years?

And this stimulus bill is $2 trillion. And this doesn’t count all the spending the Federal Reserve has planned…

Looks like our growing National Debt is yet another curve that needs flattening.

Stay safe and healthy out there folks…

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Russ Thornton
Russ Thornton
Hi there! I'm Russ, and I help women in their 50s and 60s achieve and maintain their desired lifestyle leading up to and throughout their retirement years. Imagine being able to look forward to a comfortable and confident financial future...
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