Congress recently approved a massive relief plan aimed at helping all Americans to cope with economic hardships created by the COVID-19 pandemic. The Coronavirus Aid, Relief and Economic Security (CARES) Act has several provisions including cash payments to individuals, unemployment benefits, employee sick or medical leave benefits, healthcare provisions, and more. As we researched the CARES Act, we realized that the RMD provision is an important part of the Act that applies to many of our clients and we want to do our best to inform you about the ways that it could impact you and your accounts.
Required Minimum Distributions (RMDs):
Retirement accounts such as IRAs and 401(k)s have Required Minimum Distributions (RMDs) each year beginning the year that the account owner reaches the age of 72 (previously 70 ½). These RMDs must be taken each year in order to avoid a painful 50% penalty for those who fail to comply. For this reason, we are careful to track RMDs for you to ensure that none of our clients must suffer this harsh penalty if at all possible.
COVID-19 Impact on Retirees:
As the Coronavirus began to impact Americans directly, the stock market began to drop, and we saw record breaking losses in a very short timeframe. For most of you, our Surge and Protect Strategy was enacted, and we capped much of the loss. This allowed us to preserve valuable cash assets that we can use to reinvest when the market has stabilized.
Like us, Congress recognized that it is important for retirees to have as many options available as possible to plan for the future. Preserving more assets could help you to recoup some of the losses that occurred as the Stock Market declined. Congress determined that forcing retirees to take RMDs at a time when your accounts were down was unduly harsh and therefore, they created the provision allowing you to bypass RMDs for 2020. A similar provision was made in 2008 during the Great Recession.
If you need your RMD to cover Living Expenses:
Many of you rely on funds from your retirement accounts to cover your living expenses. We have set up regular distributions from your retirement accounts that enable you to have access to the funds you need. You planned and saved while you were in your working years so you would have enough money to live comfortably in your retirement. Your hard work has paid off.
You do not need to change anything. You can go on taking distributions from your retirement accounts. We will continue to be here to address any concerns that you might have or needs that may arise.
If you do not need your RMD to cover Living Expenses:
There are also many of you who do not necessarily need the full amount required this year to meet your RMD. You have enough saved or have access to other funds that can help you to cover your regular expenses. You only take your RMD to avoid the penalty. For you, it might be wise to skip some or all your RMD for 2020 which the CARES Act allows.
- If you have not taken your RMD for 2020 let us know that you wish to skip it for this year, and we will cancel any planned distributions.
- If you have taken some of your RMD and wish to stop future distributions for 2020, call us as soon as possible and let us know that you wish to cancel the rest of your planned distributions for 2020.
- If you already took a distribution and wish to cancel it, please contact us immediately. There is a provision to reinvest distributions that were taken within the past 60 days prior to the signing of the Act. It is important to note that this is a much more complicated and time sensitive process, so you need contact us as soon as possible if this applies to you.
If you have a Beneficiary IRA:
If you are the beneficiary of a retirement account, you are also able to skip your RMD for 2020.
- If you already took your RMD for 2020 you cannot reverse the transaction. Beneficiary accounts are not eligible to reinvest distributions that have already occurred.
- If you have not taken your RMD for 2020 and wish to suspend it, please let us know and we will cancel any planned distributions.
- If you need funds from your Inherited IRA, we can still process distributions as usual. Please feel free to contact us if you need funds to cover expenses.
The Changing Economic Climate
We have been closely monitoring the Stock Market and new Governmental regulations since all of this began. We make it our mission to stay on top of these kinds of things so you can rely on us as a resource to help you to sort out the information overload that can often be confusing and even contradictory.
Please know that we are here for you to answer questions and to talk through any concerns that you might have. We have always seen our business as more of a family. When you are in times of trouble, you rely on your family. We are here for you and we will continue to support you in whatever way we can.
If you have questions about your RMDs or anything else, please reach out and we would love to talk to you. Have a friend or family member that has questions? Give them our number. We always have time to talk to your friends and family and answer their financial questions as well.
We wish you continued health and safety during this challenging time.
S.3548 - CARES Act https://www.congress.gov/bill/116th-congress/senate-bill/3548/text
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All investing involves risk including loss of principal. No strategy assures success or protects against loss.
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