On March 27th, 2020, the $2 trillion coronavirus economic stimulus bill was passed. This bill has many features including providing relief checks for Americans, unemployment expansion as well as grants and loans for small businesses. There are also some specific changes that apply to retirement accounts that you need to be aware of as well. These changes apply for the calendar year 2020 only. They are:
- You don’t have to take your Required Minimum Distributions from your retirement accounts. This suspension applies to both IRAs as well as workplace retirement plans like 401(k), 457, and 403(b) plans. This is great news for many retirees because it allows those dollars to stay invested rather than having to sell at a potential loss in order to pay out the Required Minimum Distribution.
- You can withdraw up to $100,000 this year from retirement accounts without the usual 10 percent penalty, as long as it’s because of the outbreak. You can also spread the income tax liability on this distribution over three years. This temporary rule allows you to put the money back in within three years to build the retirement account back up again. This exception applies only to coronavirus-related withdrawals. You qualify if you tested positive, a spouse or dependent did or you experienced a variety of other negative economic consequences related to the pandemic. Employers can allow workers to self-certify that they are qualified to pull money from a workplace retirement account.
- You can take a loan from your 401(k) plan up to $100,000 which is twice the normal amount allowed (normally the lower of 50% of the value or $50,000) if you have been affected by the coronavirus. You also do not have to meet the 50% rule so this means if you have $100,000 in your 401(k), then you can pull out $100,000. Loans from workplace retirement plans allow you to avoid paying income tax or penalties while at the same time paying yourself the interest on the loan. The disadvantage is that you would have to sell your funds for a potential loss.
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