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What’s new with retirement plans after The secure act and the cares act?

08 24, 2020

Congress recently passed two laws covering retirement accounts: Setting Every Community Up for Retirement Enhancement Act (SECURE Act) and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Both Acts include significant changes to retirement plans for individuals and businesses, as well as offer tax relief in response to Covid-19.

For individuals who own retirement plans (Participant), the changes affect the beneficiary distributions after the Participant dies.  The surviving spouse provisions remain the same, including the surviving spouse’s ability to rollover the deceased spouse’s IRA.  However, non-spouse beneficiaries can no longer “stretch” the period to receive Required Minimum Distributions. The law now requires distributions to be completed to the beneficiary by the 10th year from date of death of the owner.  Some exceptions apply, such as distributions to a minor child, chronically ill or disabled beneficiaries.  These are complicated rules that cover withdrawals based on the life expectancy of the beneficiary.  In some cases, some retirement plan owners believe that designating their trust as the beneficiary of their retirement account will resolve all distribution concerns. That is not true.  More than ever, Estate Planning documents need to be reviewed by a trust and estate planning attorney to determine if the distribution provisions in your trust and retirement accounts are consistent with your intentions.

Two other important changes regarding IRA’s are the minimum required distribution (RMD) age is moved  to 72 from 70-1/2, and now you can continue to make IRA contributions past age 70-1/2 as long as you have taxable earnings in the year of contribution. For businesses, the SECURE Act provides tax credits up to $5,000 to encourage small businesses to start up retirement plans.  Other credits are available for existing plans.  Indeed, the SECURE Act provides opportunity for employers to contribute to retirement savings.

The CARES Act was signed by the President in March 2020, offering financial relief to individuals and businesses in response to the burdens created by Covid-19.  In addition, the CARES Act also addresses changes to retirees who may not need additional income.  Required minimum distributions from 401(k), IRA, 403(b), 457(b) and inherited IRA were suspended for 2020.  If the retiree does not need to take money out, then the distribution can be delayed to 2021 giving the account a chance to recoup any losses suffered from a dip in the market.  Also, while the traditional 401(k)s and IRAs are taxed as ordinary income, taxpayers can defer the taxes until 2021 if no withdrawals are taken in 2020.  The CARES Act allows time for retirement accounts to rebound and offers significant tax benefits.

The CARES Act also provides financial assistance for individuals that lost their job and need income replacement. The $2 trillion Act includes funding for stimulus checks, unemployment payments and student loan payment relief for individuals. The Act also provides businesses relief through SBA Loans, such as the Paycheck Protection Program. In addition, the Act allows individuals to withdraw up to $100,000 from their retirement accounts without incurring the 10% penalty for early withdrawals. The income attributable to that distribution is taxed over three years.  Also, you may recontribute the funds to an eligible retirement plan within three years without regard to that year’s cap on contributions.

If the Pandemic has affected you financially, or you want to review your estate plan and check out the tax impact, please contact Spivack Law, or another suitable firm to discuss these important changes.

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