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The CARES Act

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Coronavirus: What To Do If You Get Laid Off From Work

April 13, 2020

While bad news has abounded in the last month, the Government's adaption to the current economic environment may actually bring good news to some. How? The CARES Act (Coronavirus Aid, Relief, and Economic Security Act) was signed into law on March 27, 2020. The more than $2 trillion package seeks to address financial pressures facing individuals, businesses, state and local governments due to the pandemic. While most of the Act is focused on economic stimulus, here are questions to consider that may help your particular situation:

Can I take money from my IRA to cope with the economic slowdown? Yes. The CARES Act waives the 10% early withdrawal penalty and allows you to withdraw up to $100,000 from your IRA and not be penalized. You will still owe income tax on that withdrawal, taxed at your ordinary income tax bracket. But the provision is for people who have been affected by the coronavirus — either you've gotten sick, or your spouse has, if one of you has lost your job or income, or your business has been impacted, so be prepared to have to show this if you're using the money.

Can I put the money back to avoid having to pay income tax on funds I end up not using? Yes. Say you're in the 22% tax bracket — you'll owe 22% on the amount you've withdrawn ($22,000 on a $100,000 withdrawal) but you'll have three years to pay the taxes off! You can split it up equally between 2020, 2021 and 2022. Additionally, you can return cash to your IRA from this early withdrawal whenever you want over the next three years to avoid owing the taxes pro-rata.

Do 401(k) plans get the same treatment? Sort of, but not exactly. When you take money from an IRA, you're taking your own money back, minus the taxes you owe. In order to take money from a 401(k), 403(b) or 457(b), it's either a distribution or a loan against those assets. But the CARES Act has expanded the size of the loan you can take from your 401(k) type plan. The borrowing limit has been raised from $50,000 to $100,000. The 10% penalty has been waived, just like for IRA owners. If you choose to take a distribution from a 401(k) type plan, you also have three years to repay the loan to minimize what you owe in income tax.

Can I borrow from my IRA instead of taking a withdrawal? Sorry, the answer is no. You cannot take a loan against your IRA and use those assets as collateral. This would be viewed as a "non-qualified distribution" in the eyes of the IRS. Don't even attempt it.

Can I freeze my required minimum distributions if I don't want to sell stocks down 30% from their highs? Yes. Investors over the age of 72 have been given a waiver to halt RMDs through 2020. Which means you can wait to take money out of an IRA (or other qualified plan account) until next year.

For those with beneficial IRAs that have been inherited from deceased parents, we're still waiting for definitive guidance, so hold off before taking these distributions for now. If you have already taken your RMD, you may be able to just roll that amount back into your IRA but talk with your oXYGen Private CFO® or tax professional first.

The CARES Act is a detailed stimulus package that may bring you some good news but perhaps it also raises questions and the details seem a little unclear. Call your Private CFO®, or simply click on our website link https://oxygenfinancial.com/contact-us and type in "I have questions about the CARES Act". We are here to help you Breathe Easier®.

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Benefit Changes for Your Retirement Plans

About the author

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Micah Keel

Managing Director, Sarasota

Micah Keel is the managing director of oXYGen Financial in Sarasota, FL. Micah is an author, market analyst, and independent financial advisor with 20 years of experience in the financial services industry. He was honored with the Five Star Wealth Manager Award in 2014, 2015, 2016, 2017, 2018, 2019.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual.

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Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice.

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