More on the SECURE and CARES Acts

By Steve Tepper, CFP®, MBA

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Last month, I talked about changes to tax-filing deadlines and required minimum distributions (RMDs) from IRAs under recent federal legislation. Here are some more changes that might impact you.

IRA Contributions After Age 70½

Previously, you could no longer contribute to a traditional IRA account after you reached the age of 70½, at which point you had to start taking money out of your account each year (RMD).

The SECURE Act raises the age that you have to start taking RMDs to 72 (provided you didn’t hit 70½ in 2019 or earlier) and allows you to continue to make contributions to your IRA, as long as you have earned income. And as mentioned last month, under the CARES Act, nobody has to take an RMD this year.

Non-Penalty Distributions

The legislation adds several new provisions allowing you to withdraw money from an IRA account before age 59½ without incurring a penalty. Those provisions include:

  • Up to $5,000 for costs related to childbirth or adoption. Note: You will still have to declare the withdrawal as a taxable distribution.

  • Up to $100,000 for coronavirus-related expenses. These could be direct medical expenses if you or a family member contracts the disease, but can also be financial losses if you are laid off or the business you own suffers a financial setback.

    The money you withdraw under this provision is also taxable income, but you have the option of paying the tax burden over three years, and if you replace the withdrawn amount back in your IRA within three years, it will be considered a non-taxable rollover, with no taxes due at all.

Despite these enticements, taking money out of your IRA should remain one of your last options for income. Talk with your advisor to review other options that might be preferable based on your financial status and goals.