The coronavirus has impacted nearly everything, and your IRA is no exception

In March, as the world was in the throes of a new pandemic, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The law, one of the few bright spots of those early months, helped Americans impacted by the COVID-19 pandemic.

The SECURE Act offers retirees a break from RMDs in 2020. If you have already taken your required minimum distribution, the good news is an amendment to the law now allows people to put their 2020 RMDs back. Now, all or part of any RMDs taken from January 1 to June 30, 2020, can be restored without penalty, and the deadline for doing is August 31.

The IRS is characterizing each redeposit of RMD assets as a tax-free rollover. There are some exceptions for people taking distributions throughout the year or from inherited IRAs (the 10-year rule still applies), but this is still great news.

Many younger people can take penalty-free distributions in 2020. Coronavirus-related distributions of up to $100,000 from qualified retirement plans and traditional IRAs are available in 2020 without a tax penalty, but only under the following conditions: One, your plan has to permit such distributions. Two, you, your spouse, or one or more of your dependents must have been diagnosed with COVID-19 OR you must personally have experienced negative financial consequences due to COVID-19. This can be nearly anything that has impacted your employment, such as a delayed job start, layoff, rescinded offer, reduction in pay or self-employment income, or the inability to work due to lack of childcare.

The CARES act eliminates the automatic 20% withholding, but you will still have to pay income taxes on any amount you distribute. You may elect to spread the distribution over three years for tax purposes, and you also have the chance to put 100% of it back in the plan within three years, without having the withdrawn amount characterized as taxable income.

The CARES Act isn’t the only recent law to affect IRAs. With the passage of the SECURE Act in December 2019, you may now keep contributing to your traditional IRA as long as you earn income. Before the SECURE Act, you had to stop contributing to a traditional IRA when you reached RMD age (that age was previously 70½, but the SECURE Act changed it to 72). Contributions to traditional IRAs are now allowed past the current RMD age, as long as you meet the earned income requirement. For people like Erica’s 82-year-old geologist dad, this is great news.