Laws help navigate financial challenges amid coronavirus

The COVID-19 pandemic is causing unprecedented suffering and economic hardship to millions of people. Two game-changing laws enacted by Congress, however, have the potential to alleviate some of the financial pain and, when the crisis is eventually over, allow Americans to save more for retirement.

To help those who have been financially affected by the crisis, Congress approved the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which contains several provisions that allow individuals to tap into their retirement savings without penalty to pay bills during the pandemic.

Meanwhile, the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) – which was passed at the end of last year – significantly improved the ways individuals can save for retirement.

For some people these days, taking care of the health of a loved one is their top priority. For many others, a more pressing need is replacing lost income. The CARES and SECURE Acts, which address different needs, were created to help you during these trying times.

Three ways the CARES Act provides financial flexibility

The CARES Act allows individuals to tap into their retirement savings – or take a “coronavirus related distribution” (CRD) – if a spouse or dependent has been diagnosed with COVID-19 or has suffered adverse financial consequences as a result of losing income during the crisis.

Here are three new rules that you should know about:

❚ Individuals can withdraw up to $100,000 in CRDS from an individual retirement account (IRA) or qualified retirement plan without paying early distribution penalties

❚ Allowable loan amounts from an IRA or qualified plan have been increased to $100,000 or 100% of the vested balance, up from $50,000 or 50% of the vested balance

❚ Minimum required distributions – or the amount of money that must be withdrawn from a traditional employer or individual account – are not mandatory in 2020.

One word of caution about CRDS: If at all possible, avoid taking money out of your retirement savings.

In addition to reducing the money that will be available in the future, you could incur a financial hit because the value of the securities (stocks and bonds) in your retirement account may well have declined. Over time those securities can eventually rebound in value, so please talk to your financial advisor before making a decision.

Two retirement-saving benefits of the SECURE Act

Currently being overshadowed by the pandemic, the SECURE Act features some of the most favorable changes in over a decade to federal regulations governing employer and individual retirement plans. Many of the act’s provisions help companies create better retirement plans, such as being able to offer annuities and to join with other businesses to provide employees with a wider range of investment options.

Two new rules, however, are designed specifically to help individuals build their nest egg, which will become more important when the coronavirus crisis eventually passes:

❚ Age restrictions on IRA contributions have been removed, which allows individuals to contribute to their retirement account beyond the traditional retirement age if they have earned income

❚ The age when required minimum distributions (RMDS) must be taken from retirement accounts has been increased to 72 from 701⁄2

The importance of these rules is twofold.

First, you are now permitted to save more for retirement in the latter years of your life. Second, postponing an RMD gives you more time for your funds to increase in value before you start taking any money out of (and paying taxes on) your retirement accounts.

The CARES and SECURE Acts offer much-needed changes to help individuals and families navigate the financial challenges brought on by the pandemic, but they could also significantly impact your retirement savings.

Check with a financial advisor to review your retirement plan and individual (or family) budget. They can help you understand what options might be available to help you get back on track towards achieving those savings goals.

Stephen M. Russell serves as head of trust and estate administration for the Middle Tennessee Region of First Horizon Bank.

Stephen M. Russell Guest columnist