I’m sitting dock side at a beautiful Marina in the town of Point Loma enjoying a quiet birthday respite. It was quiet until Wilma, Betty, Barney and Fred showed up and popped a squat a few socially distanced feet away. All was peaceful until a conversation about The Coronavirus Air Relief and Economic Security Act (CARES Act) of all things, got a little heated. Well that got me thinking, which is never a good thing according to my lovely bride by the way. There are a host of features and implications of this Cares Act and as most things “government” they can be complicated. That said, I thought we would break down a few of the key pieces that you should be aware of:
- Regardless of you age you do not have to take required minimum distributions (RMD’s) in 2020. The waiver applies to company savings plans, traditional IRAs and Roth Inherited IRAs.
- Withdrawals taken out of your 401k or other employer-based retirement plan are not subject to the 60 day once a year constraint. If you made multiple distributions between Feb 1 and May 15th you can roll those back into your 401K.
- If you requested federal taxes withheld, you can’t redeposit those funds when you do a roll-over but you can retrieve those funds when you file your 2020 taxes.
- The Cares Act allows you to take an early distribution of up to $100,000 from your 401k, 403b, 457 and traditional IRA without the 10% early Distribution penalty. There would be federal income tax due on pre-tax distributions. However, you are allowed to pro-rate the taxes over a 3-year period. If you deposit the funds within that 3year period, you’ll avoid income taxes. However, you must be able to demonstrate you were impacted by the virus and pay taxes due on the withdrawals.
A host of IRA experts including mentor Elliot Raphaelson, and the illustrious Ed Slott believe that the IRS will eventually issue a revision to its policy and allow all RMDs taken out this year to be eligible for rollover. What I enjoyed the most about the conversation Wilma and the gang were having is that they were aware of changes and the impact those changes could have on them and their retirement lifestyle. All too many of us leave too much of our future to “hope” and that is simply not a successful strategy! Always remember, keep it simple, and “The More you Learn the More you Earn” (and keep)!
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