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Dupaco Credit Union - IRA

Can the CARES Act help your retirement savings?

The recently enacted CARES Act might offer you more than a stimulus payment. Your retirement savings also might get some help with the emergency economic recovery package.

The Coronavirus Aid, Relief and Economic Security Act and other emergency measures provide relief to savers during the COVID-19 pandemic.

You have more time to save

In response to the pandemic, the Internal Revenue Service extended the deadline for filing 2019 federal tax returns from April 15 to July 15 this year.

That means the deadline for making 2019 contributions to your Individual Retirement Account and Health Savings Account was also extended to July 15.

“In the past, there have never been extensions to the IRA contribution deadline, even if the taxpayer had filed for an extension,” said Dupaco’s Lynn Schmitt, IRA manager.

You don’t have to withdraw money this year

The CARES Act allows you to hold onto your savings this year if you’re usually required to take money out of your retirement plan.

The IRS typically requires you to begin taking money out of your traditional IRA once you reach a certain age (either 70½ or 72, depending on your birth date). This is called a required minimum distribution.

The CARES Act waives this requirement in 2020 for all IRA plan participants, owners and beneficiaries.

How this can help you

Ultimately, this emergency measure can protect your savings during the recent economic downturn.

Here’s why: The 2020 required minimum distribution amounts are based on your account’s value Dec. 31, 2019, when the economy was healthier.

This relief effort prevents you from being forced to withdraw money and pay tax on a much higher percentage of your IRA’s balance today.

“The amount you would have to take out would have been higher, even though your account value might have gone down,” Schmitt said. “Eliminating this requirement also helps you reduce your 2020 tax bill.”

Navigating your options

Even though you’re no longer required to take a withdrawal from your IRA this year, you can still take a withdrawal if you wish—especially if you need the funds to get through this time.

If your IRA is set up with an automatic distribution and you want to cancel future distributions for this year, call Dupaco as soon as possible at 800-373-7600, ext. 218. Your automatic distributions will resume in 2021.

If you still want your automatic distributions to continue, you don’t need to take any action.

If you’ve already taken an IRA withdrawal, you might be able to put the funds back as a rollover if you:

  • Are the IRA owner (if this is an inherited IRA, you must be a spouse beneficiary).
  • Have not rolled over another IRA withdrawal within the past 12 months.
  • Return the funds within 60 days of taking the withdrawal.

Please call Dupaco for additional guidance.

If you need to take a withdrawal

Usually, early withdrawals from an IRA are subject to a 10% tax penalty.

Under the CARES Act, though, you might be able to take early withdrawals from your IRA plan without incurring an IRS penalty if you need the funds for pandemic-related reasons.

Eligible reasons might include:

  • Being diagnosed with COVID-19.
  • Caring for a spouse or dependent with the virus.
  • Experiencing financial hardship as a result of quarantines, layoffs or childcare expenses.

Consult with your tax advisor about these penalty exceptions.