An individual retirement account (IRA) can play a key role in any well-rounded retirement savings strategy. Since there are a lot of rules that govern when and how you can use your IRA, it’s important to research on your own or work closely with a tax advisor to ensure you’re following them all to the letter.
If you have an IRA, a couple of federal laws were added and revised recently that might affect you. The CARES Act, intended to help those affected by COVID-19, and the SECURE Act, which retools the way retirement plans are handled, both include important changes to IRAs.
The SECURE Act, in particular, “made dozens of changes in rules for retirement plans, including tweaks aimed at helping people save more of a nest egg,” says the New York Times, including changes recognizing that, “people are living and working longer and need more time to save.”
You’ll want to consult a tax professional to find out exactly how these changes may impact your IRA. In the meantime, here are some highlights to be aware of:
The required minimum distribution age has changed. Previously, the age at which individuals must begin taking required minimum distributions (RMDs) was 70½. Under the SECURE Act, the age has been raised to 72. That means if you were turning 70½ in 2020, you don’t have to start taking distributions yet.
You don’t have to take any distributions in 2020. The CARES Act has waived the RMD requirement this year, so you don’t need to take any distributions if it makes financial sense not to. If you’re already taking the distributions, you can contact our team to request a stop to them. You can also return one of your RMDs per year within 60 days—the normal restrictions still apply.
You may be able to make penalty-free withdrawals. The CARES Act also allows for qualified COVID-19 relief withdrawals up to $100,000. You won’t incur an IRS penalty for doing so, although taxes still apply. You may qualify for relief withdrawals if you, your spouse or a parent has been diagnosed with COVID-19, or if you’ve experienced adverse financial consequences due to being quarantined or losing work because of the current pandemic.
You can still make prior-year contributions. Since the deadline for filing your federal taxes has been extended, you can still make IRA contributions to offset your 2019 tax liability, up to the annual limit of $6,000 (or $7,000 if you’re 50 or older), through July 15.*
Your unique financial situation will determine which of these changes affect you, so you should consult a tax advisor to help you decide how to proceed. Connect with our team to discover more about what the IRA changes could mean for your overall financial wellness, we’re here to help.
* Please consult a tax advisor regarding whether this would benefit you.