If you’re among those folks who were going to have to take a required minimum distribution or RMD from your retirement accounts this year, there’s a bit of good news in the fiscal stimulus legislation passed in response to COVID-19.
The CARES Act lifts the requirement for individuals to take RMDs from their retirement accounts in 2020, according to Jamie Cox, a managing partner with Harris Financial Group.
According to Cox, those persons 72 and older, in addition to those with inherited IRAs, are now free to stop withdrawals, lower withdrawals, or choose to take no distributions altogether in tax year 2020. What’s more, those IRA account owners will not be subject to the 50% tax penalty, which ordinarily is assessed for amounts not distributed as income.
Another key provision according to American Society of Pension Professionals & Actuaries is this: The CARES Act waives the 10% early withdrawal penalty tax under Internal Revenue Code Section 72(t) on early withdrawals up to $100,000 from a retirement plan or IRA for an individual who:
- is diagnosed with COVID-19;
- whose spouse or dependent is diagnosed with COVID-19;
- 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 Treasury Secretary.
According to Cox, the legislation also permits those individuals to pay tax on the income from the distribution ratably over a three-year period and allows individuals to repay that amount tax-free back into the plan over the next three years.
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