What You Need to Know About the CARES Act and Your Retirement Plan

11/5/2020 3:38:00 PM

Bell Bank News

For those 70½ or older and already taking or required to take your retirement plan required minimum distribution (RMD), the CARES Act could affect your distribution decisions.

If you’re using your RMD for retirement income, you don’t have to make any changes. Continue taking your RMD as needed.

If don’t need to take your RMD, you don’t have to, which could lower your taxable income for 2020.

While a nice benefit for those able to take advantage of it, this change has caused some questions. Here are some answers to the most frequently asked CARES Act RMD questions.

  1. If I don’t take my RMD for 2020, will I have to make it up in 2021?

    No. This temporary RMD waiver is meant to provide relief during the COVID-19 pandemic and will not need to be made up.

  2. What if I’ve already taken my RMD more than 60 days ago but don’t need it? Can I put it back?

    Not anymore. RMDs already taken could have been put back into an individual retirement account (IRA), but it had to be done by August 31, 2020.

  3. Should I take my RMD?
  4. That all depends on whether you need it. If you use it for living expenses, then by all means take it. If you don’t really need it, you could have tax advantages by leaving it in your retirement account. Please consult with your tax advisor.

For those experiencing a hardship related to the COVID-19 pandemic, you may be able to take up to $100,000 out of your IRA without having to pay the 10% penalty normally imposed before age 59½.

Hardships can include:

  • Losing your job
  • Being diagnosed with coronavirus
  • Having your spouse or dependent diagnosed with coronavirus
  • Suffering financially due to being quarantined, furloughed or having work hours reduced
  • Being unable to work due to lack of child care because of the pandemic
  • Owning or operating a business that had to close or reduce hours due to COVID-19

To be eligible for the penalty-free distribution, you must be able to prove that any of those situations caused a financial hardship – and coronavirus-related distributions must be made to either a plan participant or beneficiary during the 2020 calendar year.

If you’re in the process of repaying a retirement plan loan, you do not have to make payments for 2020. (But if you can, it’s always a good idea to repay such loans as soon as possible, so your retirement plan can continue to grow.)

Note: These changes are optional for employers, so if you have an employer-sponsored plan and your employer does not formally agree to amend the plan, you may not be able to take out a loan or hardship distribution.

Because long-term planning is so important when saving for retirement, we generally recommend against taking money from your retirement plan early. If you have an emergency fund, dip into that first. Also, with rates at historic lows, talk with your financial advisor about whether a home equity loan or line of credit might be a better option.

If you’re not sure what to do, contact Dan Espe, Bell Bank’s IRA services coordinator, at 701-451-3027 or despe@bell.bank, and he’ll walk you through your options.


This article has been written for the general information of clients and friends of Bell Bank. It is not intended, nor may it be relied upon, as tax or legal advice with respect to any matter. This article also cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by the Internal Revenue Service or other taxing authority.

Investing and wealth management products are not FDIC insured, have no bank guarantee, may lose value, are not a deposit and are not insured by any federal government agency.