The CARES Act and RMD: Relief for Investors

YOu The CARES Act (The Coronavirus Aid, Relief, and Economic Security Act) contains the legislation for Required Minimum Distributions (RMD) for those over age 70 ½ and have already started RMD. Under the CARES Act, no RMD is required for individuals or beneficiaries of inherited retirement accounts in 2020 due to COVID-19. How will this help investors?

• RMD amounts base on a December 31^st, 2019 valuation, requiring a more considerable RMD amount than before the CARES Act legislation.
• Eliminating RMD for 2020 will decrease an individual’s overall earnings, resulting in a potentially lower state and federal tax liability.
• Investors experiencing market loss can forego a distribution in 2020. And capture the market’s potential upside on the shares not liquidated for the Required Minimum Distributions RMD.

No Required Minimum Distributions

An opportunity for clients who are typically required to take distributions from their IRA accounts is provided by The CARES Act. Individuals who are 72 and older don’t have to take their annual RMD based in 2020. They might consider a Roth Conversion. The usual amount of taxes will apply to the Roth Conversion amount. However, the dollar amount converted may occur during a down market. Investors can capture the potential market upside with no tax consequences on the Roth IRA’s growth on their initial conversion amount. We recommend that you consult with your financial advisor or tax professional for specific advice.

In addition, you may use the RMD from a tax-qualified plan to purchase an annuity. Under the same tax provisions of the CARES Act.

Invest Without Penalty

An additional economic relief provision is built-in for COVID-19 hardship distributions. Investors can access up to $100,000 from their employer retirement savings without penalty. This applies if impacted by COVID-19 in any of the following ways:

• They or an immediate family member diagnoses with COVID-19.
• They were not able to work due to a lack of childcare.
• Their job eliminates, reduces operational hours, lays them off, or they quarantine, resulting in financial duress.

Taxes are due on any CARES Act retirement savings plan hardship distribution, but no early distribution penalty applies. If you are considering an RMD distribution or a COVID-19 hardship distribution, feel free to contact our office. We can provide clarification of The CARES Act.

Disclosure: This newsletter is being provided as a service to you. Please note that the information and opinions included are provided by third parties and have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. Financial Professionals should ensure they continue to follow the current policies on the use of any advertising, third-party materials, and/or social media as required by your broker/dealer and/or the carriers that you represent.

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In addition The Legacy Source specializes in providing strategies and guidance for those who are seeking a better lifestyle in retirement. If you have retirement savings of five million dollars or $50,000, we can ensure it works as hard. As a result, we offer our experience and knowledge to help you design a custom strategy for financial independence. Contact us today to schedule an introductory meeting!