There are various laws and regulations in place to help encourage taxpayers to save money towards retirement. These laws and regulations have specific rules about when the owner of a retirement account can begin taking withdrawals. A failure to abide by these rules can result in penalties.

Recent changes to these rules may impact how taxpayers choose to handle their retirement accounts.

In the past, these rules generally required taxpayers to begin taking withdrawals from tax-advantaged retirement accounts when they turned 70 ½. These plans included employer-sponsored retirement accounts and traditional individual retirement accounts. The Secure Act changed this requirement.

In 2019, lawmakers agreed that those who can afford to let this money sit and continue to accrue should not be required to take withdrawals. As a result, anyone that turns 70 ½ in 2020 or later can let the money sit in the account until they turn 72. It is important to note this law does not generally impact the rules surrounding distribution requirements from Roth IRAs.

Rules surrounding withdrawals have further changed as a result of the coronavirus pandemic. President Donald Trump recently signed the Coronavirus Aid, Relief and Economic Security Act (CARES) into law. This allows individuals with economic hardship due to the coronavirus to take a distribution of up to $100,000 from their 401(k) or IRA without penalty. The CARES Act also allows those who take this distribution three years to replace the funds or to pay required taxes on the distribution.

Taking advantage of an early distribution is not always a good idea. If possible, it is generally best to allow these funds to continue to accumulate. Instead, with interest rates at an all-time low, it may be more financially advantageous to consider a loan. However, for those who are in financially dire straights and would have considered taking funds from their retirement accounts regardless of this new law, the passage of the CARES Act offers some much-needed relief.