The novel coronavirus has caused many changes in all our lives, but changes that can be particularly impactful include retiring or being laid off amid this pandemic. Reilly Financial Advisors wants to let you know that, no matter your situation, there are ways you can access the funds you have worked so hard to save for your retirement—whether that be for the rest of your life or simply until you find a new job. The easiest way to understand the options available to you is to go based on age, with the important age brackets being under 55, between 55 and 59 ½, and over 59 ½.
You may think that if you have retired or been laid off before age 55, there are no options available to you. However, there are, in fact, two ways you can access funds; one of which is permanent, while the other expires at the end of 2020.
- Your first option is a substantially equal periodic payment (SEPP) plan, or 72(t), which allows you to take penalty-free withdrawals from your Aramco Savings Plan or traditional IRA. The payment amount per year is determined by your account value and one of three methods approved by the IRS. These payments must continue for the longer of five years or until the account owner reaches age 59 ½. This avoids the 10% early-withdrawal penalty, but the funds are subject to income taxes. If you plan to seek further employment, this is not a good short-term solution (as the income will be forced each year). If payments are modified within five years or before the account owner reaches age 59 ½, the exception to the 10% penalty is lost and you must pay the penalty plus interest.
- Your second option, which currently expires on December 31, 2020, is part of the CARES Act that was signed into law in March 2020 as a reaction to the COVID-19 pandemic. There is a provision that allows anyone who has been impacted (broadly defined) by COVID-19 to withdraw up to $100,000 from a retirement account without incurring the normal 10% penalty. Again, income taxes apply; however, the CARES Act also allows you to spread the income tax due over three years.
If you are age 55 or older in the year your employment ends, you can access funds from your Aramco Savings Plan without incurring a 10% penalty. Your funds must stay in the Aramco Savings Plan until age 59 ½ for this exception to apply; funds taken from an IRA between ages 55 and 59 ½ would still be subject to the 10% penalty.
If you have retired or been laid off and you are age 59 ½ or older, you have reached the golden age for retirement rules. You now have access to funds in both your Aramco Savings Plan and any IRAs you may own without penalty. If you find yourself in this position, a great strategy is to complete annual Roth conversions until reaching age 72.
Reilly Financial Advisors welcomes the opportunity to help you determine which of these strategies may be best for you, given your personal situation and goals. Please email us at [email protected] or visit our website to schedule your complimentary consultation.
Disclosure: Reilly Financial Advisors does not provide legal, tax, or accounting advice. You should obtain your own independent tax and legal advice based on your particular circumstances.