New CARES Act and SECURE Act Impact on Retirement Savings

The $2 trillion stimulus bill, known as the Coronavirus Aid, Relief, and Economic Security (CARES) Act, was signed into law on March 27, 2020, to address economic and health-related issues resulting from the COVID-19 pandemic. A key provision of the new law suspends the required minimum distributions (RMDs) from retirement savings accounts, such as 401(a), 457(b), 403(b), as well as IRAs, for 2020.

It also means you can continue saving. With the RMD waiver, eligible retirees age 70½ and older who would like to, can skip their 2020 distribution and instead leave the money, without penalty, in their retirement savings plan, given the current stock market declines. Watch for messaging from ICMA-RC in the coming weeks regarding this and additional provisions related to the CARES Act. If you have any questions, please contact your ICMA-RC representative or our Participant Services team.

This new RMD reprieve follows a spending bill passed by Congress late last year that included the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which is designed to boost savings. Here are highlights:

Increase beginning date of RMDs. In addition to the new RMD suspension tied to the CARES Act, the SECURE Act of December 2019 changed the age at which you must start your RMDs (drawing down your retirement account savings) from 401(a), 457(b), 403(b), plans as well as IRAs from age 70½ to 72. (If you turned age 70½ in 2019, the rules related to the CARES Act apply.) This means, your money could have an extra 12 to 24 months to grow tax-sheltered.

Under the SECURE Act, if you turn age 72 in 2021, you will need to take your first RMD by April 2022, giving you another 12 months before having to take the first RMD as compared to the previous rules. Alternatively, if you turned age 70½ later in 2019, you may have an extra 24 months before you have to take your first RMD as compared to the previous rules. And you will get more time for tax planning, such as paying some taxes now to convert part of a traditional IRA money into a Roth IRA that has tax-free withdrawals and no RMDs.

No IRA age limit. For tax year 2020 and beyond, the law removes the age limit at which you can contribute to a traditional IRA. Prior to this change, you could not make a traditional IRA contribution after age 70½ (although you can contribute to a Roth IRA if you meet the income limitations). The law allows anyone who is working and has earned income to contribute to a traditional IRA regardless of age.

Demise of the "stretch IRA." This estate-planning strategy allowed non-spouse heirs to inherit an IRA or a  401(a), 457(b), or 403(b) plan, and "stretch" their withdrawals over their life expectancy. That meant younger heirs could potentially leave much of that money growing tax-deferred for decades.

Now, non-spouse heirs must empty the IRA or retirement account within 10 years following the year of the owner's death. Heirs who remain under the old rules include spouses; the disabled or chronically ill; minor children (not grandchildren) generally until the age of 18, and beneficiaries who are not more than 10 years younger than the deceased. And the old rules still apply if you inherited an account before 2020.

Learn more about the new rules in this SECURE Act Changes FAQs document.