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Coronavirus Aid, Relief, and Economic Security Account and Your IRAs

April 17th, 2020

President Trump recently signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) into law. The CARES Act is to support individuals, businesses, hospitals, and specific industries impacted by the Coronavirus (COVID-19) pandemic and the associated economic consequences. Woman’s Worth® Founder Jeannette Bajalia breaks down the CARES Act and explains how the special tax relief for IRA can impact you and your specific needs…

First of all, the tax relief only applies to “qualified individuals.” Qualified individuals include people who have been diagnosed with the SARS-CoV-2 or COVID-19 virus from a CDC approved test, or if their spouse or dependent has been diagnosed.

The CARES Act also applies to individuals who have experienced “adverse financial consequences” on account of:

  • Being quarantined
  • Being furloughed or laid off work
  • Having work hours reduced
  • Being unable to work due to lack of childcare
  • Closing or reducing hours of a business owned and/or operated by the individual

The law states that the Secretary of Treasury has the authority to expand the definition of “qualified individuals” if needed. If you meet the above criteria as a “qualified individual,” up to $100,000 of distributions from IRAs made in 2020 are eligible for relief.

What Is The Relief?

There are three different withdrawal-related relief provisions available.

  • The 10% Early Distribution Penalty Is Waived: Typically, the Internal Revenue Code imposes a 10% penalty tax on early withdrawals from IRAs if you are under 59 1/2. However, under the CARES Act, that 10% penalty does not apply to any COVID-19 related distribution as long as the amount of the distribution does not exceed $100,000.
  • Relief If You No Longer Need The Funds: If your financial situation improves and you don’t need the withdrawn funds anymore, “qualified individuals” can repay the withdrawals to their IRA tax free. The repayment must be made within three years of the distribution of funds.
  • Spread Out Federal Income Taxes: The CARES Act permits you to spread any federal income tax over three years, so you don’t have to pay the entire tax in the year of distribution.

How Will The Cares Act Impact Your Taxes

IRAs make up the largest single share of the retirement market, with an estimated 9.4 trillion. If you add up all the money in 401ks, 403bs, 457 plans, and other employer sponsored retirement plans, it would only amount to 8.2 trillion. This economic stimulus effort utilizing IRAs is available to help individuals impacted; but it has to be paid back, and we anticipate higher taxes in the future. “That means you need tax efficient income distribution strategies for your IRAs, regardless of whether you take advantage of the opportunities available through the CARES Act,” explains Woman’s Worth® Founder Jeannette Bajalia. “Tax planning is as critical to your retirement success as investing and managing risk of your retirement savings.”

Woman’s Worth® Builds IRA Distribution Strategies

A retirement income plan should make it clear whether to defer social security and start using your IRAs, whether you can take retirement now, or if you need to put it off for later. Your plan navigates all financial decisions and needs to be built around your lifestyle needs.

At Woman’s Worth® and Petros Financial Group we understand that we are facing a unique global challenge that has resulted in the interruption of many paychecks and the uncertainty of reliable employment. It’s never too late to come up with a plan or update your existing one to respond to current conditions. We are here to help guide and advise you through this uncertain time and encourage you to take care of yourself and reach out if you need assistance or support. Click here to schedule a consultation and learn how Woman’s Worth® can create a customized tax efficient income distribution strategy or simply give you a second opinion on your financial and retirement plan. Remember, it’s more than the money – it’s about YOUR total well-being and at Woman’s Worth®, we get it!