Roth, MD, IRA discussed on The Money Guy Show
You'll have to pay taxes on the account but we're going to waive the penalty so that you can access those dollars if you need to get to them and here's the other thing that's kind of unique is that they let you if you access this money. They said look. This is GONNA be taxable. We'll waive the penalty not wave the taxes. But we're going to give you three years to spread the income taxes you can spread the income taxes on this distribution over twenty twenty tax. You're twenty twenty one twenty twenty two so you do have a decision to figure out how you want to deal with the three year and then here's the other part talking about three year which is awesome typically when you take money out of retirement account if you go. Wuxi really kind of wish. I wouldn't have done that because this is important money. I need for the future. You have sixty days to put the money back into the retirement account and no mess. No fuss you know. They consider that you put the money back in. They have done some crazy here. Never seen this. They wrote in the legislation. You actually have three years to pay back this retire. This corona vars distribution so normally normally. It was sixty days to do that. And they've extended it now to three years thirty six months to get that money back into these retirement accounts so that's kind of unheard of so now you guys are probably trying to because we talk about financial order of operations Elliott. Tom Respect the financial auto order operation. You're probably trying to figure out okay. I've got this horrible decision. Now I gotTA figure out do I take pretext money. Do I take Roth Money? Which grows tax free. What's the right decisions we're making that? I want to go a little deeper because I don't hear a lot of people talking about this and you and we're so nerdy we actually covered this. Is that you and on our own private discussions. We said well. Let's talk about these. Let's I kind of lay out. What they're good at what they're not roth. What do we love about as it grows completely tax free supercharge domino markets? Right now are depressed. They're down so we kind of want those Roth. We won't that Roth money ready to pounce when it's time to recover we won't those assets to grow tax free. Now you can screw up the tax free growth of a roth buy yes you can get to the Corpus or your original contributions without taxes. That's why they're always an emergency kind of bank account that we don't really talk about but it is a pseudo backup emergency reserves account. But once you get into the the actual earnings there's a way you can blow up the tax free part so you got to be careful with that so that you. We know that you'd get out of the penalty. So if you're comparing those two accounts I would tell you financial operations. I think you would see an emergency order of operations. I'd probably rather take tax deferred money before I'd take Roth money again. Every single situation so nuance because one of the things you'd want to analyze this. How much basis do have in my Roth? Because potentially they're not gonNA get to that money unencumbered right no taxes. But if I'm having to start pulling out earnings out of my roth and I ain't gonNA subject to tax and I'M GONNA lose that future growth. Yeah I'm with you I think pre-tax might be the first bucket. I would go to if the basis Roth didn't didn't fit the bill. Cover it you of course always could put the money back within three years. Follow HIM INTO TAX RETURN. Get Out of the tax consequences but probably when we hit that slingshot rubber band effect of wing. Remember the faster we go down. Very likely v-shaped recovery the faster we go back. We won't those Roth assets there to take advantage of the of the tax free throws so again is a lot of folks are asking questions that we don't know the answers to and this is one that we see a lot imaginable. Hit this in the Queue Anna but a lot of folks and can spread this distribution over three years. Should I think about maybe actually doing some financial planning and looking at like Roth conversions? And that sort of thing. Remember in order for the cove nineteen distribution to qualify. There are GonNa be some things that have to be met in terms of why you took that distribution you had at someone else had economically affected if that the case and you only did it for planning opportunities. I don't know if that's going to fly. Think you're GONNA be in a grey zone and that's what I'm seeing right now a minute. We're going to get to the payroll protection program for businesses. When I read the clarifications coming out of the Treasury Department it ties into the common sense of what was the intent. What was the purpose making sure? We're not double dipping making sure people aren't taking advantage of things when we're in a time of need. I would be very careful of doing using the corona virus distribution for Roth conversions. Now that doesn't mean we're GONNA get to our. Md's we'll talk about. Maybe there is a planning opportunity. But that's not piercing. The intent of what? What the whole thing with this bill is so just be careful with that. So let's talk about next thing out. There is updates to loans from employers. Yep So this one is pretty big. There were some one of the big change they made previously. If you want to take a loan from your 401k or a loan for employer spot retirement retirement account it was capped at fifty thousand dollars. No matter how big the account was you can only get up to fifty thousand well. They're now doubled that you can actually go all the way up to one hundred thousand dollars of alone. And the second thing that they changed his previously. You couldn't borrow up to one hundred percent of the value of your account. There's a threshold that you couldn't crossover now. You can actually borrow up to one hundred percent of your entire vested account balance. So that's pretty substantial again. I think we should put a disclaimer on this. 401k dollars are for the future. They're supposed to be for your future self. They're supposed to grow when you take your army your soldiers out of your army of dollar bills. They're not working for any longer. So is something that you should do with. Caution and not hastily. I think there's something we talk about. In Bo- unit wants another one of our conversation making. We're really thinking we've we. We actually live this thing. I mean but it is one of those things. I won't people. This is our life. We've been living breathing this stuff. You Ask yourself a question. Is it better to take a loan or is it better take this? Corona virus encountered some of the things. We've talked about now. I WANNA qualify this. 'cause you're kind of your choosing between two not great decisions. I mean I will tell you. This is not a favored thing that you're like man. That's a great planning opportunity. This is like when you know you're in a pickle. You need the access you're trying to figure out what's the lesser of the two things that I'm choosing and loan in a lot of ways probably going to be easier for you not go pay taxes on it so we think that maybe there is some opportunities alone before you take a distribution because ultimately the the way that a 401K K. Loan works as you are borrowing money from yourself and you're paying yourself back and imputed interest rate whatever the interest rate in the 401K. Loan is but the big thing said you avoid that tax penalty when you pull alone out of a 401k. You're not paying ordinary federal income taxes. You'RE NOT PAYING INCOME TAXES. So perhaps if you needed ten thousand dollars it's easier to get less cumbersome to get ten thousand dollars out of your 401k. Then ten thousand dollars out of your IRA. It might be more advantageous from that aspect. But there's some things you gotta be careful well and I feel bad because I feel like I'm giving and then I'm taking it away because the two things you have to worry about with alone several things while you're paying back the typically you're reducing what you're paying into the plan as a contribution so think about we have a reduced stock market a financial market system that is depressed prices and one of the biggest things we talk about. That is your friend would involve times as dollar cost averaging buying an assistant matic process when you do the loan. It's going to take away your ability to maximize that opportunity. And then don't forget if you do have a career change or job change in definitely involved. Tom Job changes occur even more frequently. If you have an outstanding loan when you leave the employer it does become a distribution in. There is a chance. Maybe you think this could happen. You need to be careful because I don't know that that would be classified then as a corona virus. I don't know you could get yourself and you could miss out on that. Three year spreads right so guys. This is complicated stuff. We WanNa give you all the facets of this. We're definitely trying to be the financial mutants that are thinking about this. Giving you all the information but this might be warned. If you're really having to make those decision talk to somebody who wants to take into account all the facets and make sure that you're not missing out you don't know what you're blind spot is and what you're missing out is Bo. I want to kind of pivot now to our. Md's Y-. I'm so excited about this. Because I thought the last two were like. Oh don't don't do it. That's not awesome. That's kind of emergency. I'M GONNA argue. This is actually a positive one. There's actually some fun planning. We can do around required minimum distributions. I want you to do the kind of show them walk them through. We did a flow chart to kind of give people a decision maker but then I wanNA talk about why. This is a good part of the legislation. So we're having a lot of people asking us. Okay if I have taken for having taken if it's my if it's an inherited army so again we thought one of the best ways to lay this out would be in a flow chart so what we've put together is if you think about twenty twenty this present tax. Have you taken your or md this year? If the answer to that is yes and the next question you have to ask is was it from an inherited. Ira If the answer is yes. I've already taken an inherited. Ira required minimum this year. You're out of luck. There's nothing you can do about that. You're just kind of stock. That's unlucky that you did that at the beginning of the year if it was from your personal assets though if you pull your rnd out in January February march from your personal IRA because you are above the age where you have to begin drawing them. You can actually pay back under the payback rule. So yes you get that money back in there because the government said we're doing away with all these four twenty twenty so if you have not taken your NBA this year whether it's inherited or whether it's for your personal assets.