Congress and President Trump are passing new laws in an effort to stabilize the economy and bring financial relief to American households. The latest relief bill offers people of a certain age opportunities to potentially save money on taxes or grow their retirement savings. Whichever options they choose, Catholic United members should know that the choice they make could have a substantial effect on their annual income.
President Trump signed the Coronavirus Aid, Relief and Economic Security (CARES) Act into law on March 27, 2020 with the goal of providing financial relief to Americans during the COVID-19 pandemic.
For people age 70-and-a-half and above, the new law dictates changes relating to retirement savings and Required Minimum Distributions (RMDs) in 2020. (RMDs are payments from retirement accounts that the government requires account owners of a certain age to take as taxable income.) The law allows people to forego their RMD requirement from a qualifying IRA, 401(k) or other retirement account this year. In simple terms, this means that people who would normally be required to take an RMD can either take the payment as usual or leave the money where it sits.
In light of this year-long RMD holiday, many financial publications such as Forbes magazine are encouraging people to forego taking an RMD. The reasoning behind this advice is to keep the money in retirement accounts as we all wait for the markets to settle. Catholic United Financial IRAs are fixed Individual Retirement Annuities. They have guaranteed minimum interest rates and their values don’t fluctuate with market volatility, so this advice doesn’t necessarily apply.
With all of this in perspective, what should Catholic United members do?
If your RMD is retirement income you rely on for living expenses, then stay the course. Your RMD will continue to provide for you in this way.
If you don’t need to take an RMD to provide for income needs and living expenses, then you may want to consider taking the opportunity the government is giving you to leave the funds where they are and let them grow at the current guaranteed rate.
The government originally created RMDs to generate tax revenue. The point of this provision of the new law is to provide Americans tax relief during these troubled financial times due to COVID-19. If lowering your tax footprint for 2020 might be beneficial to your financial plan, you will want to consider taking advantage of this RMD reprieve, guided by the advice of a tax advisor.*
In April, members age 70-and-a-half or older who own IRAs with Catholic United should watch their mail for a letter from us. The letter explains the new laws as we have described here. Members who are scheduled to have an RMD in 2020 need to fill out the enclosed form indicating their RMD choice and return it to the Home Office via mail, fax or email. Our Member Services department will then follow the member’s wishes to either distribute the RMD as normal, or to forego the RMD payment.
If you have any questions or concerns about your IRA or RMD choices, feel free to contact your local Sales Representative. Or, call Member Services at 1-800-568-6670 during business hours (Mon-Thu: 8 a.m. to 4:45 p.m., Fri: 8 a.m. to 12:30 p.m.). Catholic United Financial is open for business and ready to assist you.
*Catholic United does not offer tax advice. Consult with your tax advisor about your specific situation.