CARES Act and Retirement Accounts

by | Apr 24, 2020 | WWC WorthWhile Reading

We’re sure by now that most of you have heard about the Coronavirus, Aid, Relief and Economic Security (CARES) Act, and most have probably received a benefit or two from it. BUT, how does it impact your retirement accounts?  There are two sections with special provisions for retirement accounts: Section 2202 and Section 2203.  Today we will discuss Sec. 2203 and follow up next week with Sec. 2202.

In short, Section 2203 waives the Required Minimum Distribution (RMD). If you are unfamiliar or need a refresher, here is a quick overview of RMD: If you are over 72, or 70 ½ prior to the SECURE Act, you are required to take an annual distribution from your qualified retirement plan. The distribution is calculated using IRS actuarial life-expectancy tables and the retirement account’s previous year closing balance, i.e. what the account was worth on December 31st of the previous year.

Why would Congress waive the RMD in a time when so many are facing financial hardship? One benefit is it will help to relieve some of the pressure felt in retirement investment accounts and keep some cash moving in the markets. Suspending RMDs for 2020 will also allow time for retirement plans to recover.

Now, if you are like many of our clients, you’re set up on a monthly distribution so that your RMD is satisfied by year end. It’s not abundantly clear how that is being handled, but it appears that some of these funds that have been taken within the last 60 days may be eligible to be put back in the qualified retirement account.

An area of exception is Inherited IRAs. At this time, it does not appear that funds will be eligible to be deposited back to Inherited IRAs if the RMD has already been taken.

Bottom line, if you are one of those lucky people who doesn’t “need” their RMD, consider leaving it in your retirement account to capitalize on this unique opportunity to let it continue growing another year tax-free.

Worthwhile Wealth Council is not a tax advisor and offers no tax advice services. Further, WWC emphasizes your tax payer responsibility to maintain appropriate tax records and encourages you to seek appropriate tax advice from a qualified tax advisor regarding this and any other transactions that may have tax payer consequences for you and your reporting requirements.

Have a great weekend!