Navigating Retirement Account Rule Changes Under the SECURE and CARES Acts

The rules on IRAs, 401(k)s, and other retirement accounts have changed again. The Setting Every Community Up for Retirement Enhancement (“SECURE”) Act was signed in December 2019 and became law on January 1, 2020. The SECURE Act changed several retirement account rules to make saving for retirement easier and more accessible. It also changed the rules on withdrawing from those accounts.

One change under the SECURE Act is that Americans may make retirement account contributions beyond age 70 ½. Now, there is no age limit for making retirement contributions if the contributor is still working. This is beneficial because many Americans are working past their traditional retirement ages. Being able to continue making retirement contributions gives contributors a valuable tax deduction and helps them to save more for retirement.

Another change under the SECURE Act is the age at which Americans must start taking required minimum distributions (“RMDs”), meaning the amount that they must withdraw from their retirement account each year. That age is now age 72 instead of 70 ½. Previously, Americans were required to start taking withdrawals from their retirement accounts by April 1 of the year they turned 70 ½. Since the SECURE Act pushed the required age to 72, it allows retirement account owners to defer paying taxes on those funds while the funds keep growing. This is beneficial since more people are working later into their lives. Americans that turned 70 ½ in 2019 needed to take their RMDs in 2019. However, those that turned 70 ½ in 2020 are not required to take their RMDs until age 72.

The Coronavirus Aid, Relief, and Economic Security (“CARES”) Act became law on March 27, 2020. The CARES Act is an over $2 trillion economic relief package to help protect Americans from the public health and economic impacts of COVID-19 by providing fast and direct economic assistance. It also made changes to the rules for retirement accounts.

The CARES Act relieves Americans that would otherwise be required to make RMDs in 2020, by suspending all RMDs from qualified retirement contribution plans in 2020. This allows retirement account owners, no matter their ages, to allow the funds in their retirement accounts to grow for another year to recover from the market downturn. For those that have already received their 2020 RMDs, they may recontribute that distribution, or roll it over into a new IRA or other qualified plan, within 60 days of receiving the original distribution.

The CARES Act also allows a special, coronavirus-related distribution to eligible individuals, which waives the 10% early withdrawal penalty for distributions up to $100,000 from qualified retirement plans for coronavirus-related purposes made from January 1, 2020 to December 31, 2020.

These changes create many options for contributing to or withdrawing from retirement accounts. We recommend that clients consider their wishes regarding their retirement accounts as part of updating their estate plans.