I spent a lot of time this past weekend reading through the massive recovery bill just passed by Congress, referred to as the CARES Act.  But I also took time out to host a virtual family get together for my four kids, their significant others, and our three grandkids (a few dogs put in appearances as well).  It was a great way to stay in touch and hold loved ones close even as we observe physical distancing.  I happened to use Zoom, but there are other options as well, such as Facetime (Apple), Video calling (Android), Facebook Messaging with a video option, etc.  I think we’re fortunate to be living at a time when we have so many technologies available which enable us to stay in touch with one another, and in many cases to keep businesses moving, when we have to be physically separated.  Please take advantage of them!  And remember to reach out to those who might feel more isolated than usual during these difficult times.

Changes!  Back to the CARES Act, there are some important but little-reported provisions in regard to your IRA or employer retirement plan you should know about, no matter what your age.  But bear in mind, just because Congress now says you can do something, it doesn’t automatically mean you should.  Likewise, if you’re now not required to do something, it doesn’t necessarily mean you shouldn’t.  Change simply gives you more options to do what works best for you in your particular situation.  As you can tell, there are a lot of changes coming at us these days… that is challenging for sure, but it means you may have more choices and opportunities too!

We’re going to point out some highlights of the CARES Act related to IRAs and employer plans so you can consider options for planning purposes.  However, please understand there may be additional important details we’re not covering here, so don’t make any final decisions until you consult further with your personal tax advisor, financial planner or other knowledgeable advisor.

RMDs:  All required minimum distributions (RMDs) for 2020 are waived.  This includes your first RMD if you turned 70-1/2 in 2019 but chose to wait until 2020 to take your first one.  Waiving the RMD may help avoid liquidating a portion of your investment when the market is down if you can wait to take funds until it recovers.  Many retirees have their IRA plans set up to automatically send the RMD every year (or quarterly or monthly), so be sure to get in touch with your advisor if you want to have it suspended.

Inherited IRAs:  The RMD waiver also applies to any distributions you may be taking from an IRA you inherited from a non-spouse.  If you’re taking those funds over a 5-year period, you’ll now have an extra year.

Emergency Withdrawals:  No matter what age you are, if you have been directly affected by COVID-19, you now have immediate access to your retirement funds.  “Directly affected” means you, your spouse or a dependent has been infected with the virus, or you suffered a financial loss due to quarantine, furlough or work reduction.  Even if you’re under 59-1/2, you can withdraw up to $100,000 without penalty.  You will have to report the distribution as income as you usually would, but will be able to spread it over three years of tax returns.  You also have up to three years to put the money back without regard to the usual annual limits or having earned income; it will be handled like a rollover.

Caution!  Before you go rushing out to cash in your IRA, remember you should only do this if you absolutely need to and have no other good options.  Your IRA is a long-term investment to help you cover future needs when you retire.  It’s hard enough to build up that account as it is, and once you take money out, you’re going to find it very difficult to put it back again.  That doesn’t even consider the growth you’ll miss out on, especially if the market recovers significantly after your withdrawal.

Plan Loans:  For the next six months, employer plans may allow you to borrow up to 100% of the value of your account, up to a maximum of $100,000.  You can wait up to one year to begin repaying the loan.  We offer the same caveat as above about using this option.  Contact your plan administrator for more information.  (Note, you can’t “borrow” out of an IRA, only employer plans which have a loan feature.)

2019 IRA Deadline:  This wasn’t part of the CARES Act, but just a quick reminder that, as we reported earlier, you now have until July 15^th to make IRA contributions for tax year 2019.  If you hadn’t already put money into your IRA (or less than the limit), this may be a good opportunity to capitalize on a future market rebound.  Maybe this would be a good place to park your rebate check coming soon if you don’t really need it, or if you find you have cash freed up because of various payment deferrals being allowed now.  See our blog post from March 25^th for more information and planning ideas.

Think Strategically:  When faced with how to weather a storm such as this, it’s natural to focus on getting through the next few days, weeks or months, but as you do, don’t panic!  We rarely make good decisions when we’re operating out of fear.  Periodically take a few deep breaths and calm your mind.  Consider a few options you might not have thought of at first, and think strategically for the long term, even as you figure out how to get through the short term.  Run ideas by a trusted advisor for additional input and perspective.  You are not alone in these difficult times, we’ll all come through them together!

We are closely monitoring new developments, emerging details and planning opportunities, and post frequent updates here as we learn more.  Check back often, or follow us on LinkedIn, Facebook or Twitter for alerts.