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The CARES Act and Your Required Minimum Distribution (RMD)

These are trying times for the American people due to issues such as the public health crisis, unemployment and increased market volatility. The federal government has passed the CARES (Coronavirus Aid, Relief and Economic Security) Act to reduce some financial stress during this pandemic. This act reallocated $2 trillion to battle the effects of COVID-19 through various means. It is imperative to stay informed on the options that are provided to you by the government as a retiree account holder.

This plan is particularly beneficial for retirees as it waives required minimum distributions (RMDs) from retirement plans and IRAs for this year. If account holders were required to take distributions from their retirement accounts at these low prices, then they may experience unexpected investment losses. To counteract this, the federal government built in a stipulation to the CARES Act similar to what was done in 2009. Retirees over 72 or those who turned 70 ½ before January 1st, 2020 can now skip the 2020 RMD entirely. This keeps money in their accounts for an extra year which provides time for recovery.

If you’ve already taken your RMD, the CARES Act, unfortunately, does not offer repayment back into your retirement plan. The good news is that there is a 60-day grace period included in the act that allows your RMD to be rolled over into a separate IRA in order to avoid paying income tax. Additionally, if 2019 was the first year you were required to take an RMD and you opted to push it to 2020, then the CARES Act allows you to skip 2019 deferred RMDs.

If you take your RMD every year to support living expenses, then you can certainly continue to take money out of your retirement account. For those individuals under 59 ½, the act also includes a waiver for the usual 10% early withdrawal penalty and if you were personally affected by COVID-19 then you can also withdraw up to $100,000 from your retirement plan this year with no penalty. This eliminates the incentive to avoid any withdrawals due to possible penalty fees.

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This report is a publication of Demand Wealth.  Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change.

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