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Some Important changes to Retirement Plans resulting from the CARES Act

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COVID-19 has had a devastating impact on the lives of many individuals both physically and financially. In response to this pandemic, Congress recently passed and the President signed into law the Coronavirus Aid, Relief and Economic Security Act or CARES Act. While this legislation and stimulus package is intended to help individuals and businesses in many ways, there are several provisions related to retirement planning which provide opportunities to help address the negative impact of the pandemic on individuals, particularly the economic and financial effects. The following represents a couple of these important changes to retirement plans resulting from this CARES Act.

One significant change relates to those individuals currently subject to the Required Minimum Distribution “RMD” rules. The CARES Act has provided a waiver of these distributions or RMD’s in 2020.

This applies to traditional Individual Retirement Accounts “IRA’s” and workplace retirement plans, such as:

  • Simplified Employee Pension or SEP IRA’s
  • SIMPLE IRA’s
  • 401(k) Plans
  • 403(b) Plans
  • 457b) Plans
  • Inherited IRA’s

It does not apply to Defined Benefit Plans

Also, for those wishing to convert to a Roth, there is no requirement to take your RMD first before conversion in 2020

A second significant change to retirement plans resulting from the CARES Act relates to providing individuals an opportunity to rollover or return their RMD in the event they’ve already taken it in 2020.

  • Generally RMD’s are not eligible for rollovers, subject to certain exceptions, one being that you’re still working
  • Because there is no RMD requirement in 2020, any RMD is voluntary
  • These Rollover distributions typically have a 60 day rule wherein the rollover must be completed within 60 days of the distribution in order to avoid tax implications
  • The CARES Act has provided an exception and extension to the 60 day Rollover rule such that anyone who has taken an RMD between February 1st and May 15th has until July 15th in 2020 to complete this rollover with no tax implications
  • This 60 day Rollover rule exception does not apply to Inherited IRA’s

Given what’s been going on in the investment markets since the beginning of the year, with some markets down more than 20% and RMD calculations based on December 31, 2019 valuations, this may offer an excellent opportunity to rollover the RMD and give these funds a chance to grow and recover tax deferred until 2021. This would be particularly relevant for an individual not needing these funds. This point also applies to the opportunity to waive any RMD in 2020 and thus let these funds continue to grow tax deferred until 2021.

We hope you find this information useful. There are other important changes to retirement planning resulting from the CARES Act as well as the SECURE Act which we will highlight in coming communications.

HighTower Advisors do not provide tax or legal advice. This material was not intended or written to be used or presented to any entity as tax advice or tax information. Tax laws vary based on the client’s individual circumstances and can change at any time without notice. Clients are urged to consult their tax or legal advisor before establishing a retirement plan.

Fortress Wealth Planning is registered with Hightower Securities, LLC, member FINRA and SIPC, and with Hightower Advisors, LLC, a registered investment advisor with the SEC. Securities are offered through Hightower Securities, LLC; advisory services are offered through Hightower Advisors, LLC.

This is not an offer to buy or sell securities. No investment process is free of risk, and there is no guarantee that the investment process or the investment opportunities referenced herein will be profitable. Past performance is not indicative of current or future performance and is not a guarantee. The investment opportunities referenced herein may not be suitable for all investors.

All data and information reference herein are from sources believed to be reliable. Any opinions, news, research, analyses, prices, or other information contained in this research is provided as general market commentary, it does not constitute investment advice. The team and Hightower shall not in any way be liable for claims, and make no expressed or implied representations or warranties as to the accuracy or completeness of the data and other information, or for statements or errors contained in or omissions from the obtained data and information referenced herein. The data and information are provided as of the date referenced. Such data and information are subject to change without notice.

This document was created for informational purposes only; the opinions expressed are solely those of the team and do not represent those of Hightower Advisors, LLC, or any of its affiliates.