Earlier this year, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This historic relief package allocates some two trillion dollars in aid to combat the economic impact of the ongoing coronavirus crisis.
Anticipating the Cost
The Congressional Budget Office estimates the CARES Act will add $1.7 trillion to the federal deficit over the next decade. The Committee for a Responsible Federal Budget (CRFB) estimates that for fiscal year 2020 the deficit will reach $3.8 trillion, $2.1 trillion in 2021, and average $1.3 trillion through 2025. The United States has been operating under a deficit since 2001.
Congress is currently negotiating the next coronavirus relief package. Depending on the final bill, it could cost an additional $1-3 trillion, on top of already passed relief efforts. This creates an environment in which the government, to cover the costs of the CARES Act and related legislative actions, will likely raise taxes. Individuals 10-15 years away from retirement, should consider tax-advantaged financial solutions.
Relaxed Distribution Rules
Those younger than 59 ½ years old with certain qualified plans and IRAs can take a larger-than-normal early distribution without paying the ordinary 10% penalty tax. There is also no mandatory 20% withholding tax requirement on these early distributions. Keep in mind individuals will still have to eventually pay taxes.
These rules allow for the flexibility of managing taxes and distribution. The individual may spread the taxes over three years or pay them all in 2020 at a lower rate. They can also redeposit money back into their retirement account within three years.
It’s important to note that these relaxed rules, along with the elimination of early withdrawal penalties, are only in effect through the end of 2020. Encourage your clients and prospects to act now to take advantage of these provisions.
Planning Opportunities
The economic impact of the COVID-19 pandemic has caused many people to be concerned over their financial well-being during retirement. Now is a good time to discuss moving funds from a qualified plan into a guaranteed income generating product, such as fixed/indexed annuities.
Legislation such as the TCJA, the SECURE ACT, the CARES Act, and additional pending relief efforts have muddied the waters of our future tax environment. This presents an opportunity to talk about mitigating risk through tax-advantaged savings vehicles.
To help guide this conversation, IAMS, Inc. is offering a CARES Act and Retirement Account guide, which goes in-depth on the changes brought on by this legislation. The guide details eligibility requirements, the modified process for taking distributions, planning opportunities for annuities, and more. Help your clients get more from their retirement by requesting your copy today.
Click below for your free copy of the IAMS CARES Act and Retirement Account guide.
