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By J. Victor Conrad, CPA (inactive), CFP, ChFC, AIF

The Coronavirus Aid, Relief, and Economic Security (CARES) Act contains a lot of economic relief, but in this blog I’m going to focus on a couple provisions related to financial/retirement planning. In addition, I’ll share a couple suggestions on how (and if) to incorporate these changes and speak to clients about them.

Rules on Use of Retirement Funds

The CARES Act waives the 10% early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts for coronavirus-related purposes made on or after Jan. 1, 2020. In addition, income attributable to such distributions would be subject to tax over three years, and the taxpayer may recontribute the funds to an eligible retirement plan within three years without regard to that year’s cap on contributions. Further, flexibility was added for loans from certain retirement plans for coronavirus-related relief.

It is important to note that a coronavirus-related distribution is one made to an individual who is diagnosed with COVID-19, whose spouse or dependent is diagnosed with COVID-19, or who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19, or other factors as determined by the U.S. Treasury secretary.

This provision was added to help people gain access to this money with more flexibility than normal. This was seen as a necessity because, unfortunately, many individuals don’t have much saved in the bank. They may, however, have funds in a retirement account (IRA or employer-sponsored plan). This is not an ideal place to go for funds, and to sell investments at a market low is probably not a good idea. These allowances, however, do offer an option for those people in dire need who have no other recourse.

Temporary Waiver of RMD Rules

The CARES Act waives the required minimum distribution (RMD) rules for certain defined contribution plans and IRAs – yes, both traditional and Roth IRAs, as well as beneficiary/inherited IRAs – for calendar year 2020. This provision provides relief to individuals who would otherwise be required to withdraw funds from such retirement accounts.

This is a huge benefit. Note that this waiver/suspension of RMDs also occurred in 2009 in response to the 2008-2009 credit crisis. For those who don’t need all or some of their annual RMD, think long and hard about not taking it out in 2020. Blindly taking out money from your retirement account due to habit could easily create more taxable income than necessary.

J. Victor Conrad, CPA (inactive), CFP, ChFC, AIF, is the founder of PINNACLE Financial Strategies LLC, a wealth management firm in Wexford, Pa. He can be reached at vconrad@pinnaclestrategies.org.

Find out more about how COVID-19 has affected personal financial planning and investment considerations by attending this PICPA webinar on April 16. 

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