CARES Act Retirement Plan Provisions – Part 2
In our last post, we discussed some CARES Act relief provisions related to retirement plan participants and access to funds. In this second post, we’ll discuss a few more items that pertain to distribution relief.
For 2020, “required minimum distributions” (RMDs) are suspended. This goes for RMDs from your IRA, your 401k, or your 403(b) / 457 plan. Under normal rules, if you were age 70.5 prior to 2020, or if you turned 72 in 2020, you would be required to take a taxable distribution from your IRA or other qualified plan account. For 2020 the required distribution is suspended, which may provide tax relief as well as prevent investors from selling assets at low valuations in order to fund the required distributions.
This same suspension provision is in place if you are an heir who inherited a retirement plan balance and have been taking annual mandatory distributions from the inherited IRA. No required distribution for 2020, unless of course you want to take the distribution.
If you have already taken your 2020 RMD, you may be able to execute a 60 day “roll back” into the account if you want to undo the distribution that you already received.
Thankfully, we are still early enough in 2020 where planning can be done with some of the CARES act provisions that impact retirement plans. As you know, we are big fans of the lower-tier federal tax brackets of 12% and 22%, and we encourage distributions or Roth IRA conversions if you are already in these tax brackets. Roth conversions are double attractive at this time, where asset values are low because of the shock to financial markets of the pandemic; when asset values recover, it will be better to have assets housed in a Roth IRA, where the tax has already been paid.
Please feel free to reach out to us if you have questions about your specific situation.
Jared Walsh CFP®, CPA
Shawn Goetz, CRPC®
Reservoir Wealth Management