If you’re wondering about how the Government’s $2 trillion coronavirus stimulus package, and the CARES Act, is going to affect your retirement account, then you’re going to want to watch the rest of this video. Thanks for tuning into this financial update on The Smart Money Show

Today, we’re going to be talking about why you should be caring about the CARES Act, especially if you have a retirement account and if you’re taking distributions from that retirement account.

Let’s get started. What is the CARES Act?

It’s the Coronavirus Aid, Relief and Economic Security Act and it is part of the record $2.2 trillion stimulus that was just passed by Congress. This is a new thing; we’re just getting the news today and this is what we’re seeing so far and how it’s going to affect your retirement accounts.

If you are taking required minimum distributions, for 2020 only, RMDs are being completely waived. So that’s if you are over the age of 72, and you’re taking your RMDs on an annual basis from your 401(k), 403(b) and in your IRA accounts, you do not have to take them for 2020

There also will not be any taxes or penalties if you choose not to take your RMD for 2020. Think about that for a second. If you are someone that doesn’t typically need that income or that distribution from your retirement account, you might want to think about not taking it this year.

If you have sufficient cash reserves, or a taxable investment account, or some other source that you can use to cover your living expenses in retirement with, you’ll probably want to think about doing this.

If you’re already taking monthly or regular distributions to satisfy your RMD from your IRA or your 401(k), the guidance hasn’t been issued yet by the IRS, but we’re pretty sure they’re going to let you put that money back into the account. So we have to wait for some additional guidance on that. Stay tuned for an update soon.

Also, you’ve probably heard that the IRS already said that you have until July 15th to file your federal taxes, and also to pay any federal taxes owed. The CARES Act now pushes back personal IRA and Roth IRA contributions. The deadline is now also pushed back to July 15th.

If you didn’t have the cash flow to make your maximum IRA or Roth IRA contribution yet, or you just want to wait, frankly you can. You have until July 15th, or until you file your taxes for 2019. We’re talking about a 2019 contribution, this has actually never happened before, so now you have all the way until July 15th, 2020 to make a 2019 contribution. It gives you some extra time

Here’s another thing, it’s a 401(k) loan as part of the CARES Act. It’s a hardship loan, so don’t just take a loan from your 401(k) to take a loan. This is because you actually need the help.

There is a temporary provision now that if your plan allows for loans, check your plan document, you can take a loan up to $100,000 from your 401(k). Typically loans are limited up to the lesser of $50,000 or 50% of your account balance in the 401(k) plan. Now with the CARES Act, at least temporarily, you’ll be able to take a loan up to $100,000 from your 401(k)

Beyond loans is a hardship distribution. The CARES Act actually now allows you to take a hardship distribution from pre-tax retirement accounts, that’s an IRA, a 401(k) or 403(b). This is an actual distribution, so not a loan.

You can take a distribution, also up to $100,000 and you’ll have to pay the taxes on this, but you’ll have up to three years to pay the taxes. It also sounds like you’ll have up to three years to replace the money and then not have to pay any taxes or any penalties at all.

To clarify this distribution rule, it means you don’t have to pay the 10% early withdrawal penalty if you’re under age 59½, but you do of course still have to pay the taxes. So really, if you’re taking a distribution of that size from your pre-tax retirement accounts, it really should be a last resort.

So don’t take any of this lightly. Don’t just take a distribution or a loan just to do it. Only do it if you need the money. It’s better for you to keep your money at work so your investments can grow even more through this recovery.

If you learned something new, show us some love, give us a like and remember to share this with your friends and loved ones. They probably are wondering some of the same questions about the CARES Act, especially if they’re taking RMDs, and we want to hear from you.

Leave us a comment, send a message, and until next time, thanks for tuning into this update on The Smart Money Show. I’m your host Stephen Rischall and I’m helping you, get smart with money.