How the CARES Act Could Impact Your Retirement Account
Summary
You do not have to take your required minimum distribution (RMD) in 2020.
If you have already taken your RMD for 2020, you have the option it to put it back into a retirement account within 60 days.
Individuals are eligible to make 2019 contributions to IRAs, employee-sponsored retirement accounts, and HSA’s until July 15, 2020
This new legislation does not limit the ability to make charitable gifts from an IRA.
Congress approved and the President signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27th, 2020. The bill is aimed at providing relief to individuals and businesses that have been negatively impacted by COVID-19. Some aspects of this bill may impact your options for taking distributions or contributing to retirement accounts. While the IRS has yet to finalize regulations, below is a summary of key provisions regarding retirement account rules based on the latest legislation.
You do not have to take your required minimum distributions this year. Retirees and individuals with employer sponsored retirement plans, traditional IRAs, and/or IRA-based plans, who are subject to RMD requirements can forego RMDs for 2020 and are not subject to any tax penalty. This also applies to inherited IRAs.
If you have already taken your RMD for 2020, you may treat it as an eligible rollover distribution. Individuals are allowed one 60-day rollover during a 12-month period. This means you can “rollover” the amount back it into a qualified retirement account within 60-days. Taxes withheld from the original RMD(s) are not eligible to be refunded.
Individuals who turned 70 ½ in 2019 and chose to delay their RMD to as late as April 1, 2020 can waive their RMD for 2019. If the RMD has already been processed, then you may be able to place the distribution into the original tax-deferred account. This only applies if the distribution was taken in 2020.
Distributions already taken from inherited accounts are not eligible to be rolled over; however, there is one exception. A surviving spouse is eligible to rollover the RMD amount already taken in 2020, but the rollover must be made to the spouse’s own (not a beneficiary’s) retirement account.
Qualified Coronavirus-Related Distributions from Retirement Accounts
If you or your spouse has been diagnosed with COVID-19 or experienced financial hardship as a result of the pandemic, you may be eligible to take early, penalty-free distributions from retirement accounts in 2020. For rules may apply for taking early distributions:
Waiver of 10% early distribution penalty tax under code section 72(t) for those under 59 ½.
Extension of the 60-day rollover period to three years.
Spread of the distribution over three taxable years (evenly) beginning in 2020.
Distributions are capped at $100,000 per taxpayer and continue to be subject to income tax rates.
Loans from Employer Sponsored Retirement Plans
Eligible participants (same qualifying criteria as above) in an employer-sponsored retirement plan are able to borrow the lesser of 50% of the vested balance or $100,000 (increased from $50,000). This is for the period of 180-days beginning March 27, the date of enactment of the CARES Act.
Extension to 5-year Distribution Rule for Inherited IRAs
If a beneficiary of an inherited IRA previously elected to take distributions using the 5-year rule, the CARES Act extends the 5-year period to 6-years.
Under the 5-year rule, distributions are optional, until December 31 of the fifth year that follows the year in which the retirement account owner died, at which time the entire balance must be distributed. The CARES Act extends the 5-year period to 6 years, as long as the 5-year period would have included 2020.
Tax Filing and Contribution Dates Extended
Not addressed in the CARES Act, the IRS has extended the deadline for taxpayers who file and pay their Federal income taxes on April 15, 2020 to July 15, 2020. This is an automatic extension and does not require any additional forms. This also includes estimated tax payments for tax year 2020 that are due on April 15, 2020.
With this extension, contributions to eligible retirement accounts have also been extended. Individuals are eligible to make 2019 contributions to IRAs, employee-sponsored retirement accounts, and HSA’s until July 15, 2020.
Qualified Charitable Distributions
Lastly, this legislation does not limit the ability to make charitable gifts out of an IRA. For those who are charitably inclined, it may be worth evaluating your giving strategies.
We are evaluating the options our clients may have regarding these changes. If you have any questions about your specific situation, do not hesitate to contact us.
Contact us at 865-584-1850 or info@proffittgoodson.com
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