Managing Your Retirement Plan and RMDs During COVID-19

Many individuals are asking their advisors for tax advice regarding those who have received their Required Minimum Distribution (RMD) in 2020, as well as individuals seeking to make early withdrawals from their retirement plans. We want to highlight what we know and links to help you make the best decision for your situation.

RMD Deferral Beyond 70½

On December 20, 2019, the Secure Act made major changes to the Required Minimum Distribution (RMD) rules. If you reached the age of 70½ in 2019, the prior rule applies and you must take your first RMD by April 1, 2020. If you reach age 70 ½ in 2020 or later, you must take your first RMD by April 1 of the year after you reach 72. If you have questions as to when you are required to take your RMD, your financial advisor will be able to clarify the date for you.

CARES Act Waives Mandatory RMD in 2020

The CARES Act made provisions that RMDs are not mandatory in 2020. This benefits retirees who do not need the cash immediately and provides an opportunity for IRA or 401(k) plan balances to recover when the economy makes a comeback. For individuals who received an RMD within the past 60 days, the monies can be returned to avoid taxation. If the 60 days has passed, we are waiting to find out if additional rulings will be made to allow the RMD to be returned without a tax penalty.

Compare Your Options: 401(k) Withdrawal or Loan

If you are considering an early withdrawal from your 401(k) Plan due to circumstances related to COVID-19, we highly recommend you compare each option. While you can withdraw up to $100,000 from your retirement plan without the 10% early distribution penalty (between March 27 and December 31, 2020), would the better option be a loan against your 401(k) and repay it in three years. You need to decide what is best for your own personal situation.

Keep in mind that the U.S. Treasury, Congress, and State officials are working nonstop to amend and update relief efforts. We are doing our best to keep you informed of changes as they occur.

The IRS is frequently updating their FAQs, to learn more, click here.

DISCLAIMER: The WM Daily Update COVID-19, COVID-19 Business Resources and COVID-19 Client News Alerts and other related communications are intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.