What the CARE Act means for your retirement plan and 401k

Ed Slott, founder of IRAhelp.com, joins Yahoo Finance Live to highlight how the CARE Act could impact retirement plans and what it means now that required minimum distributions (RMDs) are waived for 2020.

Video Transcript

MYLES UDLAND: It's time now for our retirement segment that's brought to you by Fidelity. And we're joined today by Ed Slott. He is the founder of IRAhelp.com. And, Ed, thanks for joining us here.

And I want to just start with where the new CARE Act kind of fits into the retirement picture. Did it change things? And what conversations you've been having to try to help people figure out exactly where things stand now in 2020. Ed, I think you might have to unmute yourself here during this program.

ED SLOTT: Hi. You hear me?

MYLES UDLAND: We got you, Ed. There we go.

ED SLOTT: All right. Well, good to be here. The other thing that was unmuted was the RMD, Required Minimum Distribution. They are waived by 2020. Now that's going to help a lot of people-- not everyone. But remember, these are the amounts that people who are basically over age 70 and a 1/2 have to start withdrawing from their IRAs, 401(k)s, 403(b)s. All that money has to come out each year.

Now each year's amount is based on the value as of the last day last year. So if they were-- if people were forced to take money out based on the 12/31 balance-- 12/31/19 when the Dow was about 28,000, they'd be left with a huge tax bill on value that has vanished. So for those people, that's a big help. They don't have to take the money. They can wait till hopefully things rebound and take a year off. It applies to beneficiaries too. So it could save people lots of taxes.

The only problem is according to the Treasury's own numbers, about 80% of people take more than the minimum because they need the money. So if people are going to take the money anyway, obviously it doesn't help them. But if you don't need the money, it's a big help. So some people will see benefit. Some people will see no benefit. Some people might take advantage of these low values now and the low tax rates and say even though I'm not required to take money, now that it's no longer a required minimum distribution, I might want to take some money out voluntarily and convert it to a Roth at low values and low rates. That's the perfect combination to move money to a Roth IRA.

When you had RMDs, Required Minimum Distributions, those are not allowed to be converted to a Roth. But now that those are waived, it opens up a one-year opportunity, a window to convert some money from taxable accounts to tax-free accounts. So you might want to take advantage of the silver lining of low values and low rates. I think both are going to increase. The values, I believe, will go up one day, but so will taxes after the government wrote a $2 trillion check.