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CARES Act

What’s inside the $2 trillion CARES Act? What’s in it for me?

The Coronavirus Aid, Relief, and Economic Security (CARES) Act is designed to provide relief for individuals and businesses who have been hurt by the outbreak. I won’t try to include all 800+ pages in this email, but here are a few key provisions that you should know about:3

One-time cash payment. Taxpayers are eligible for a one-time direct deposit of up to $1,200 per adult ($2,400 per couple) plus $500 per child under age 16. Amounts are reduced for those who make more than $75,000 ($150,000 if married). If you have filed your 2019 taxes already, the IRS will use that income to calculate your payment; if not, they’ll use your 2018 tax filing.

Better unemployment benefits. The Act will extend and expand unemployment insurance through Dec. 31. Eligible workers (now including self-employed, independent contractors, and gig economy workers) will receive an extra $600/week for four months, on top of what they receive from state unemployment benefits.

Early withdrawal penalty waiver. The Act waives the standard 10% early withdrawal penalty for eligible coronavirus-related distributions from retirement accounts (retroactive to Jan. 1). You’ll still pay income taxes on withdrawals, but you can spread them over a three-year period or use that time to roll the distribution back over.

2020 RMDs suspended. You won’t have to take a Required Minimum Distribution from your IRA or 401(k) this year, leaving you in control of how much you withdraw. If you already took your RMD for 2020, you have several choices: keep it and pay taxes on it, return it to your IRA as an indirect rollover, or convert the amount into a Roth IRA (Roth conversions are permanent).

Securities and Investment Advisory Services offered through Founders Financial Securities, LLC Member FINRA/SIPC and Registered Investment Advisor. CA Insurance License # 0B57717.

SECURE Act

At the end of 2019, Congress passed the most sweeping change to retirement rules in over a decade.1

Known as the Setting Every Community Up for Retirement Enhancement Act (SECURE Act), this legislation went into effect on January 1, 2020, and impacts retirement and estate planning rules.

Here are a few of the biggest takeaways from the Act:

RMDs Now Start at Age

The new rules delay the age at which you must begin taking Required Minimum Distributions (RMDs) from your Traditional IRA.2

If you are already taking RMDs, continue taking them. The new rules don’t affect you. If you were born between January 1 and June 30, 1949, you're subject to the old rules and must take your first RMD before April 1, 2020. But, if you were born on July 1, 1949, or later, you can delay beginning distributions until you turn 72.

You Can Contribute to a Traditional IRA After Age 70½

If you are earning income, you can continue making contributions to your Traditional IRA after you retire.1 This change is great news for anyone who wants to continue working and growing their retirement savings. Since there’s no age cap on Roth IRA contributions, there’s no change there.

"Stretch” IRAs Are Gone For Most People

If you inherit an IRA after January 1, 2020, you won’t be able to “stretch” distributions over your own lifetime, unless you qualify for certain exemptions, including for spouses, minor children, chronically ill or disabled beneficiaries, etc.1

Under the new rules, most beneficiaries of an inherited IRA will have to withdraw the full account balance and pay taxes on the distributions within 10 years. Fortunately, if you inherited one already, you’re grandfathered in under the old rules.

Your 401(k) Might Start Including Annuities

The new rules pave the way for employers to start offering annuities within 401(k) plans by adding additional “safe harbor" protection for employers.1 While annuities can add options for employees seeking retirement income, they require research and cost-benefit analysis before incorporating them into retirement strategies. We strongly recommend seeking advice before purchasing one within your 401(k).

401(k) Plans Become More Accessible to Businesses and Employees

Many small businesses have found it expensive and cumbersome to provide 401(k) plans to their employees.1 The new rules make it simpler and safer for small employers to team up to offer “multiple-employer” plans. Starting in 2021, employers who provide 401(k) accounts to full-time employees will be required to offer access to qualifying part-time employees.

New Parents Can Take Out Penalty-Free Distributions For Births and Adoptions

Parents can now withdraw up to $5,000 (or $10,000 if married) from their qualifying retirement accounts without paying the early withdrawal penalty if done within one year of the birth or adoption date (income taxes still apply).3

This rule has some important details to get right and taking early withdrawals from your retirement account can reduce your retirement savings later. We recommend asking for advice on the best way to cover birth or adoption costs before taking advantage of the new rule.

…Plus Some Miscellaneous Tax Fixes

Kids’ unearned income is now taxed at the parents’ top marginal tax bracket (instead of the much higher trust tax bracket).4

The medical expense deduction threshold is back at 7.5% of Adjusted Gross Income for 2019 and 2020.5

529 college savings plans can now be used for apprenticeships and up to $10,000 of student loan repayments.6

The deduction for up to $4,000 in qualified tuition and fees is now available again.5

In the meantime, if you have any questions, please give the office a call at 310-545-8500

1https://finance.yahoo.com/news/congress-just-passed-biggest-retirement-200413052.html

2https://www.mercurynews.com/2019/12/30/transitioning-to-new-rmd-rules-thanks-to-the-secure-act/

3https://www.kiplinger.com/slideshow/retirement/T047-S001-how-the-secure-act-will-impact-retirement-savings/index.html

4https://www.savingforcollege.com/article/congress-passes-kiddie-tax-fix

5https://myedmondsnews.com/2019/12/sponsor-spotlight-retroactive-tax-law-changes-what-you-need-to-know/

6https://www.savingforcollege.com/article/new-law-allows-529-plans-to-repay-student-loans

Securities and Investment Advisory Services offered through Founders Financial Securities, LLC Member FINRA/SIPC and Registered Investment Advisor. CA Insurance License # 0B57717.