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    What the CARES Act Means for RMD’s

    When it comes to required minimum retirement account distributions (RMDs), the government giveth, and now giveth again.

    Earlier in the year, due to congressional approval of the Secure Act created for older Americans, the RMDs from retirement accounts are underwent a bit of a makeover. The updated life expectancy tables, which were proposed by the IRS for 2021, adjusted how you calculate those RMDs and there are two main benefits to consider.

    After 2019 the mandated annual withdrawals from your retirement accounts will begin once you reach  72, as opposed to the former 70 and a half years of age. While that age delay is a small thing, it is still helpful to those wishing to maintain account balances and defer taxes.

    The second benefit of the updated longer life expectancy calculations is that they work to make the minimum amount you have to take a little smaller. While it is true that most account holders take more than required, the IRS estimates that just 20.5% of those age 70 and older are expected to take only the minimum in 2021.  Now the government has come along to bring further financial relief to those minimum minded retirees by waiving all required minimum distributions due in 2020.

    Normally, there is a consequence if you do not take any distributions, or if the distributions are not large enough, but the Coronavirus Aid, Relief and Economic Security (CARES) Act changes this for 2020. By not taking a RMD, you can reduce your 2020 tax bill.

    Anyone with an RMD due in 2020 from a company plan, such as a 401(k), 403(b), IRA, or other defined contribution plan, is eligible.  Unfortunately, if you already took an RMD for 2020, you may be out of luck because there are generally no give backs.

    The Czar Beer team is dedicated to providing timely, accurate information on all aspects of the CARES Act and the current economic crisis that affect our clients. However, as this is all developing quickly we are here to offer support in any way we can. You can email us at info@czarbeer.com or call 212 397 2970 with any questions you may have.

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    The Truth About Withdrawing From Your IRA

    On the Czarnowski & Beer blog we’ve been sharing a lot of helpful tips and information for cooperatives and condominiums to use in an effort to reduce the harmful effects caused by COVID-19, but our wealth of knowledge doesn’t end there.

    One of the personal  forms of assistance available as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act to Americans who are struggling with financial hardship due to the coronavirus pandemic is that they can withdraw money from their retirement accounts without the usual penalty, with the option to pay any tax owed over three years. The Act also relaxes rules on taking out loans against a 401(k) savings plan.

    The fallout from the crisis has left people scrambling to pay their bills after being furloughed, getting laid off, or having hours reduced. We know that withdrawing from your IRA is a controversial topic, but if you need the money and it’s the only money you have, you may have little choice. Realize though, if you are younger than age 59 you are only being afforded a savings of 10% of the amount you withdraw – meaning you will still owe income tax on the amount withdrawn. On the other hand, no matter your age you have up to three years to pay any tax due on the withdrawal.

    All things considered, it may be more attractive to borrow money from your 401(k), assuming your plan has a loan option available. The Act increases the loan amount available from the lesser of $50,000 or 50% of your account balance to the lesser of $100,000 or 100% of your account balance. Note that your employer must adopt these changes to the plan to enable you to take advantage of them.

    If you are unfortunately out of work for a long period you will most likely find that you pay a lower income tax rate as well, but we typically advise against taking withdrawals from your retirement accounts prematurely. You should access these funds as a last resort – these days, it takes a lifetime to accumulate retirement savings.

    Ultimately, although the options exist we advise you to do your best to evaluate all of your options including family, friends, selling off personal items, etc., before considering whether to withdraw money from such funds. Think long and hard about ANY other sources of savings to access first and leave withdrawing money from retirement funds as a last resort.

    The Czar Beer team is dedicated to providing timely, accurate information on all aspects of the CARES Act and the current economic crisis that affect our clients. However, as this is all developing quickly we are here to offer support in any way we can. You can email us at info@czarbeer.com or call 212 397 2970 with any questions you may have.

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