As we as a nation continue to battle the effects of the Coronavirus, both physical and financial, Congress has been putting together a stimulus package in an effort to ease the turmoil.
The CARES (Coronavirus Aid, Relief and Economic Security) Act was just passed by the House and Senate on March 27th and becomes law, effective immediately.
Amongst the many provisions offered to millions of individuals and companies, there are a few that are very important and are specific to retirees.
The decision has been made to suspend the Required Minimum Distributions (RMD’S) for the 2020 tax year from IRA’s and 401k accounts. This is the first time since 2009 that this has occurred. By not forcing account holders to withdraw during this weakened market, it will allow retirees' funds the time to bounce back when the economy eventually upswings. Since RMD’s are calculated based on the previous year’s December 31st account balance, the amount that would have been taken in this current year would be a higher percentage of the now shrunken account balance, making it harder to bounce back to pre-coronavirus levels. Many retirees, however, depend on their RMD’s to supplement their income. In cases such as these, the CARES Act suspension won’t really matter for them as they will still need the withdrawals.
If you and your family do not depend on your RMD’s to supplement your income in retirement, then it would be a great idea to either leave them in the account undisturbed or use this opportunity to convert a portion into a ROTH IRA. Since you no longer have to take the distribution, you can take it - but convert the funds while staying in the same tax bracket. This will allow you to take a distribution from a potentially lower-value account, pay the taxes on that lesser value, and then secure the funds in a ROTH account that will never force taxes on you or your beneficiaries. This strategy coincides with the approach we have taken for many clients due to the other major tax law passed at the end of last year, known as the SECURE Act.
If you have your RMD’s automatically withdrawn every year and now wish to suspend them for 2020, we will need to contact your plan provider to do so. If you have already taken out the RMD for this year but now wish to take advantage of the suspension, it may be possible to return the funds to the provider within 60 days of the withdrawal.
Reach out today to make the right decision for your RMD’s. At Olympic Golden Retirements, we are 100% set up to operate virtually – allowing you to meet with us by phone or webcast from the comfort of your own home. Even if you don’t fancy yourself “tech-savvy,” we can make things incredibly simple, so don’t let current shelter-in-place precautions keep you from making important financial decisions. We’re here to help! Contact us now to schedule a phone consult or webcast meeting.