Staying calm during times of crisis is nothing new to those who have worked in the public sector – in fact it is a job requirement. However, we are currently experiencing a worldwide crisis on a scale that most of us have never experienced. The Coronavirus pandemic has changed the world we live in, upending our lives as well as the global financial markets. In addition to the stress of worrying about the health of your loved ones, you have the added stress of worrying about the steep decline in the value of your investments. This is especially troubling for those who are retired or nearing retirement. The best investment strategy in times of extreme volatility is to do what you have been trained to do and remain calm, and don’t even consider changing your investments! We have learned throughout our careers that decisions based on emotion are usually poor decisions that we later regret. The market will recover in time, and though nobody knows how long that will take, history teaches us that it will recover. Don’t let fear drive you to make bad financial decisions.
Required Minimum Distributions (RMD)
The SECURE Act, which took effect on January 1st of this year, changed the age for starting RMD’s from 70-1/2 to age 72 for those who had not yet reached age 70-1/2 prior to that date. Additionally, in response to the Coronavirus crisis, our government passed the CARES Act which provides financial relief on several fronts including suspending the RMD requirement for 2020 for IRAs and defined contribution retirement plans such as 401(k), 403(b), and 457(b). This also applied to inherited IRAs! For CPS managed accounts held at Fidelity, if you are receiving periodic/recurring distributions, these will continue as scheduled unless you contact your advisor and request a change. If within the past 60 days you made a 2020 RMD, you may be able to return the RMD to your account. Talk to your advisor to see if you qualify, and this does not apply to inherited IRAs. Those with accounts held at custodians other than Fidelity should contact your advisor since each custodian is implementing these changes differently.
FRS Investment Plan Members
Required minimum distributions are waived for 2020 for Florida Retirement System Investment Plan members, so RMD payments will not be made automatically for 2020. If you were required to receive an RMD payment, and still want to receive it, you may request that by calling the Investment Plan Administrator at 1-866-446-9377, Option 4, or by logging into MyFRS.com.
IRS Stimulus Payments
You may qualify for a stimulus payment of up to $1,200 (or $2,400 for married couples) authorized by the CARES Act. Direct deposit payments started going out April 9th, and should start arriving in taxpayer accounts by April 14th. Paper checks will take a bit longer, maybe as late as September for some taxpayers. Lower income taxpayers will receive their checks first. Qualification for the stimulus payments are based upon your 2019 tax return, or if you haven’t filed it yet, your 2018 return. The method of payment is also based on the method you received your refund on that return. But what if were not required to file a return for 2018 or 2019? Non-filers who receive Social Security retirement, disability (SSDI), or survivor benefits, or receive Railroad Retirement and Survivor Benefits, don’t need to do anything– the IRS will send your stimulus check by the same method. However, non-filers who receive one of these benefits and have a qualifying child under age 17, can apply for an extra $500 per child. Those who are not required to file a tax return, and do not receive the above listed government benefits, to file for the stimulus payment.
Tax Filing Deadline
As part of the CARES Act, the IRS extended the deadline to file and pay your 2019 income tax until July 15th, 2020. The deadline to make 2019 IRA and HSA contributions is also extended until July 15th, 2020.
Waived Early Distribution Penalty
For those adversely affected by COVID-19, the 10% early distribution penalty is waived on distributions of up to $100,000 (total) from most workplace retirement plans and IRAs. Also, you can choose to pay the federal income tax on the distribution over a 3-year period. However, you should talk to your advisor prior to taking early distributions.
Rick Bernard | MBA