CARES ACT – RETIREMENT ACCOUNTS

Required Minimum Distributions (RMDs) for 2020

Anyone subject to RMDs will not have to take them in 2020. You can still choose to take distributions as normal, but they will not be required. This includes required distributions from IRA, 401k, 403b, 457 plans, etc. In addition, this includes booth owner IRAs as well as inherited accounts. For non-designated beneficiaries (the estate or a trust as the beneficiary of the accounts) that previously had a 5-year rule for distributing the entirety of the account, 2020 will not count as one of the years, and give those accounts 6 years to fully distribute.

If a distribution was already made in 2020 and the client decides that they would like to un-do that distribution, they may do so under an IRA-to-IRA rollover with these limitations:    

·  It must not be an inherited IRA

·  There must not have been any other rollovers in the past 12 months

·  It must occur within 60 days of the distribution

Only ONE distribution can be un-done in the year. So, if a distribution was taken in February and March, only one may be put back. Multiple distributions cannot be combined for a single “deposit.”

If a distribution was taken outside of the 60-day window, there is a possibility of being able to put the funds back if it can be proven that you were “adversely affected by the coronavirus” in the following ways:

  • Have been diagnosed with COVID-19;

  • Have a spouse or dependent who has been diagnosed with COVID-19;

  • Experience adverse financial consequences as a result of being quarantined, furloughed, being laid off, or having work hours reduced because of the disease;

  • Are unable to work due to a lack of childcare as a result of the disease;

  • Own a business that has closed or operated under reduced hours because of the disease; or

  • Meet some other reason that the IRS decides to say is OK (to be determined)

With most retirement account holders who take RMDs no longer in the workforce, it may be more difficult to attribute the withdrawal to a direct impact of the virus.  However, in such a case, the proceeds could be returned up to 3 years later, spreading taxation of the withdrawal over 3 tax years (likely having to amend tax returns for years in which they did not pay taxes on the distributions within those 3 years).  This could be a ‘wait and see’ how the rest of the year plays out and how rules are clarified over the next few weeks/months before putting the funds back.  

Retirement Account Loans and Penalty Free Withdrawals

 The CARES Act makes a couple changes to the rules for access to the funds in your retirement accounts. We have listed these changes below.  Not all these changes will apply to everyone, however as each of those listed below the stipulation, “for those affected by the crisis.”  What does this mean?  You may be thinking everyone has been affected by this virus, but the determination as to whether or not you are affected are the same as those listed above. 

 Distributions under these circumstances are referred to as Coronavirus-Related Distributions. 

·   The law temporarily loosens the rules on hardship distributions from retirement accounts, giving people affected by the crisis access of up to $100,000 of their retirement savings without the usual 10% penalty.  

·   While the law may eliminate the 10% penalty on the above-mentioned withdrawals, these withdrawals are still taxable.  However, the law gives the option to spread the taxation over three years and even to recontribute back to those same accounts in the future. 

·   The law also doubles the amount 401(k) participants can take in loans from an account for the next six months to the lower of $100,000 or 100% of the account balance. IRAs do not permit loans.