The CARES Act provides IRS relief to millions of Americans

Congress jumped into action in March with the CARES Act to provide financial relief for Americans displaced by the nationwide COVID-19 shutdowns that lasted through April, and continue to linger today. A couple of the rules apply to those with qualified retirement plans, including 401(k) and 403 (b).


RMD Relief

For those born before 1949, required minimum distributions (RMD) are required to be taken from qualified plans at age 70.5. For those born after 1949, the RMD age has been pushed to 72. Regardless, for the balance of 2020, the IRS is not requiring RMDs to be taken. If you have have already withdrawn your RMD and do not need the extra cash, you have until August 31, 2020 to return the funds to your qualified plan.

Replacing the funds or not drawing the funds in 2020 provides you with some investable dollars that can now draw additional interest. Additionally, you are avoiding the taxes on the RMD, which provides a bit more on the investable side of the equation.


Retirement Plan Loans

Another rule the CARES Act changed enables you to borrow funds from your qualified plan without a 10% penalty if under age 59.5. The limit is $100,000. Taxes on the distribution can be spread over the next three years. Congress will get their taxes on the money — as they always do — but are allowing you to spread the payments. The 10% penalty relief will save $10,000 on a $100,000 loan withdrawal, which can go a long way for a middle class family in America.

The only challenge to the increase in loan amounts is that plan sponsors have to allow this. At this time, less than 50% of sponsors have allowed the massive loan increase, that doubles the previous amount of $50,000. Many plan sponsors are still working through the details, so the number will likely change.

At this time 48.5% of those Americans surveyed have made changes to their qualified plans in 2020, with about 11% divesting or contributing less. Being only late June, it will be interesting to see how these numbers pan out through the next few months.

At Ascend Financial Group, our goal with retirement planning is to help couples and individuals developed an empowered retirement plan that will provide them three critical areas for their retirement savings: liquidity, sustained growth, and guaranteed sources of income. Contact us for more information.