In response to the COVID 19 crisis the CARES Act was passed.
As part of the Cares Act, required minimum distributions (RMD’s) from defined contribution plans, IRA’s and 401 (k) plans (a “retirement account”) have been suspended for 2020.
Some of the factors to consider before making withdrawals from your retirement account in 2020 include:
1. Whether you need the money from your retirement account for day-to-day living expenses.
2. Whether it makes sense to withdraw money from your retirement account and pay income taxes in a low tax environment. If you expect your tax rate to increase it still may make sense to withdraw part of your retirement account in 2020.
Alternatively, you could also consider converting some or all of your retirement account to a ROTH IRA. Although you would pay income tax on the amount transferred to a ROTH IRA, the advantages to a conversion include:
1. Future appreciation of the retirement account assets would not be subject to income taxes.
2. Withdrawals from the ROTH IRA would not be subject to RMD’s or income tax.
Note: a conversion to a ROTH IRA is permanent.
In this environment of now daily changes you need to consult with your advisors regarding the effect of 2020 distributions from your retirement accounts.
We recognize that this is a difficult and confusing time for individuals and businesses. The above paragraphs outline some of the available options. Gross Shuman stands ready to assist you and your business with any legal questions on these or other topics. Feel free to contact any of our attorneys with inquiries by phone or by email at firstname.lastname@example.org.