IRA and 401K Road SignsThere is very little that the COVID-19 pandemic hasn’t touched since first disrupting our daily lives in March of 2020. Work, school, healthcare, restaurants, retail businesses, government agencies, mail delivery, and much more have been affected by shutdowns and interruptions of services. Ohio responded swiftly and drastically, possibly saving us from a much worse outcome. Needless to say, we are not out of the woods yet, but as the initial panic subsides for many of us, we might be looking at the future a little differently and wondering what we should do about retirement and estate planning.

For people with Independent Retirement Accounts (IRAs), changes that went into effect in January of 2020 and COVID-related exceptions to those changes might be a source of confusion. We take a look at two recent federal acts that address retirement savings accounts: the SECURE Act and the CARES Act.

What Did the SECURE Act Change?

The Setting Every Community Up for Retirement Enhancement (SECURE) Act was passed by Congress in 2019 to overhaul the retirement savings system in the U.S. Under the Act, which went into effect in January of 2020, people with IRAs and 401k plans no longer have to start withdrawing from the account at age 70½. Instead, they can wait until they turn 72. This gives them 18 more months to earn interest and put off paying income tax.

Another significant change has to do with how beneficiaries other than a spouse can receive funds after the death of the account holder. While beneficiaries used to be able to withdraw money over the course of their lifetime, they now have to empty the account within ten years. If there are significant funds in the account, the beneficiaries could owe substantial income tax, and they could be pushed into a higher tax bracket. This change means that some IRA holders should meet with an estate planning attorney or financial advisor to discuss changing how their IRA is distributed. This is an especially good time to meet with an advisor about your IRA because the government’s COVID-19 aid package, the CARES Act, also impacts these accounts.

What Does the CARES Act Say About Retirement Accounts?

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed in March to help Americans affected by the coronavirus pandemic. Along with providing stimulus checks to many taxpayers, the Act also loosens up some of the restrictions that are normally in place for accessing retirement funds. Under the CARES Act, if you have contracted the coronavirus or lost income or childcare because of it, you may be eligible to:

  • Take a penalty-free distribution up to $100,000 of your retirement savings, even if you are younger than 59½.
  • Borrow $100,000 or 100% of your vested account balance (whichever is less) from a qualified retirement plan during the 180-day period beginning on March 27, 2020. You will have three years to pay this back without penalty.

These options could provide people who have money tied up in an IRA an opportunity to invest in a family business or redistribute funds in a way that helps them now and protects their heirs in the future. Everybody’s situation is unique, and in our constantly changing world, it’s hard to know what you should do without talking to an expert about your specific situation.

What Should You Do Now If You Have an IRA or 401k?

Given the changes that went into effect in January under the SECURE Act and the opportunities provided by the CARES Act, now is a better time than ever to meet with estate planning attorney Ed Littlejohn to review your plan and find out how you can make the most of these new laws. Along with ensuring that you have all of the necessary and important estate planning documents in place, Ed will help you understand how the recent legislation could help you and your family during this uncertain time—and for many years to come. Call our office or fill out the contact form on this page to get started today.