So, what’s new with you?
Well, here we all are working our way through our fourth week of shelter in place, well, fourth official week in Austin Texas but a little longer with the governor’s crowd limitations going into effect earlier, but who’s keeping count. So, nothing particularly new.
Seriously though, it is unknown how long this will continue but here in Austin we’re going to be doing the shelter in place dance at least until May 8 according to the latest order that was issued on April 13. However long the order lasts we’re planning on being thankful for a place to lay our heads and an opportunity to help the situation by simply limiting our travels and keeping our distance. Remember folks, you’re not just protecting yourselves by keeping apart you’re also protecting those in the high-risk groups and those whose work requires them to be out and about regularly.
We whole heartedly support the shelter in place and social distancing orders, here’s very much hoping to at least limit the health impacts, but we also have to recognize the impact this will have on the economy at large and the personal economies of so many individuals and families. Congress, as part of the recently passed CARES Act which maybe could have been better formulated, did put forward measures to partially address some of the potential problems facing personal economies. The Act, which included the stimulus checks, also includes provisions on how people can access retirement savings.
The first provision is in regards to required minimum distributions for retirement plans such as 401(k)s, 403(b)s, and IRAs. The Act waives RMDs for anyone who so chooses in 2020, regardless of their situation. People who just turned the requisite RMD age after April of last year and were pushing the first distribution off until this year can forego both 2019 and 2020’s RMD. This is a helpful addition to the Act by not forcing a distribution when the majority of retirement accounts have taken fairly significant hits this year, allowing for some preservation of principal moving forward.
The other provisions of the CARES Act that touch on retirement accounts deal with age requirements, taxes, and penalties. Persons affected by the novel coronavirus may take a loan or distribution of up to $100,000 from their retirement account no matter what age without accruing the 10% penalty that is usually tacked on to anyone under 59 ½. Secondly normal taxes on the distribution can be paid off over three years rather than all at once. Additionally, if the distribution is put back in the retirement account within three years the taxes paid can be refunded through an amended return, effectively making the distribution an interest free loan.
We’ll be facing further difficulties in the months ahead and as the situation evolves it might make sense to take an early distribution from retirement accounts with the new provisions in place but before doing so please consider a few things.
No matter what the recovery looks like this year it is likely that at least some of the assets sold this year for a distribution will be sold at a loss.
Good intentions. The intention might be to pay back the distribution as an interest free loan but will that really happen. Think about how long it took to save an invest the amount to be taken as a loan in the first place.
All of this is not to say we’re against taking a distribution but just to be conscience of the repercussions on doing so. Everyone’s situation is unique of course and there will surely be cases where a distribution is absolutely called for.
If you would like to discuss the CARES Act Implications further, or anything else, just give us a call, that’s what we are here for. Please also let anyone you know who may be struggling with a decision to use the provision and pull from their retirement plan early that they can utilize Kozun Capital Management to help navigate that decision with them at no charge.
Thanks, and please stay safe out there folks.