Signed into law on March 27, the Coronavirus Aid, Relief, and Economic Security (CARES) Act is the largest economic relief bill in U.S. history, allocating an estimated $2.2 trillion to both individuals and businesses affected by the pandemic. What does this mean for you?
First, the act provided an immediate tax rebate up to $1200 per individual (or up to $2400 to those filing jointly). Taxpayers in higher tax brackets saw a lesser or no tax rebate at all.
Next, several large allowances were made for retirement plans and accounts, including the TSP, IRAs, and 401(k)s. If you, your spouse, or one of your co-dependents is diagnosed with COVID-19, or if you experienced a financial hardship such as being laid-off, furloughed, or a reduction of hours, then you are able to withdraw funds from your retirement account without the 10% tax penalty for early distributions, regardless of your age. This opens up financial capabilities for many, who otherwise would have had to wait until they either retired or turned 59 ½ years old to forgo this tax penalty.
For retirees aged 72 or older, there is an additional form of relief regarding RMDs (Required Minimum Distributions). Normally, one would be required to distribute a set percentage from their qualified accounts or tax-deferred IRAs based on their age. Because of the CARES Act, all RMDs for 2020 have now been waived¹.
These new and upcoming regulations translate to additional financial planning on the part of many federal employees and retirees. If you'd like some guidance or insight into how to best pivot during these uncertain times, our retirement strategists are here as a free resource.
Citations
¹Congress.gov, Sec. 2202, 2020. Congress Congress, www.congress.gov/bill/116th-congress/house-bill/748/text#toc-H7E8FA907EAE04884809A56325BD425E5.