The Coronavirus Aid Relief and Economic Security (CARES) Act contains many retirement plan related options designed to assist the millions of Americans affected by the pandemic. While we advise that you consult with your tax advisor to review all the details of the CARES Act and how it applies to your specific situation, there are some benefits that we wanted to ensure all of our customers were aware of:
- Individuals may be able to withdraw up to $100,000 in total from eligible retirement plans without paying the 10% early retirement tax, provided that they are diagnosed with COVID-19 or suffer adverse financial consequences due to being furloughed, laid off or having to work reduced hours due to being ill with COVID-19, having to provide child care or other factors.
- Individuals can repay this withdrawal to an eligible retirement plan or IRA over three years, beginning the day after the withdrawal is made. When they are paid within the three year period, they will be treated as if they satisfied the normal 60-day rollover requirement.
- Required Minimum Distributions (RMDs) in, or for 2020 are waived. This waiver also applies to individuals who turned 70 ½ in 2019 but who did not take their first RMD before January 1, 2020.
- For those of you with IRAs with us: If you previously set up your annual RMD to be automatically withdrawn, please let us know if you want the 2020 distribution to be withdrawn as scheduled by calling 603.225.2793. If we do not hear from you, we will assume that you want the 2020 RMD to take place even though it is not required by law. If you are the beneficiary of an IRA, whether it be a traditional, Roth or SIMPLE IRA, you are also not required to take an RMD for 2020. If you are the surviving spouse beneficiary you may have the ability to return the funds as a rollover contribution. Please check with your tax professional about the possibility of doing so.
- A distribution taken in 2020 may be rolled over to another eligible retirement plan or to an IRA within 60 days of the distribution and will not be subject to the 20% mandatory withholding or other direct rollover requirements.
- For purposes of counting the five-year period for beneficiary distributions, 2020 is disregarded and one year is added to the remaining period.
- For those directly affected by the COVID-19 virus, the retirement plan loan maximum has increased to the lesser of $100,000 or 100% of your vested balance, provided you took the loan between March 27, 2020 and September 22, 2020.
- Retirement plan loan dates that occur between March 27, 2020 and December 31, 2020 can be delayed for one year, with the amortization period adjusted accordingly.
The SECURE Act, which went into effect at the end of 2019, also offers some provisions for IRA customers:
- Traditional IRA owners with earned income can now make IRA contributions at any age in 2020 and later taxable years.
- Up to $5,000 is exempt from the 10% early distribution penalty tax for distributions taken for the birth or adoption of a child, or an individual who is incapable of self-support. These distributions can be repaid, and this benefit is effective for distributions taken in 2020 and later years.
- The age for required minimum distributions (RMDs) for 2020 and later years moves from 70 ½ to 72 as long as you are not already taking them.
- Effective for deaths that occur in 2020 or later, with limited exceptions, non-spouse beneficiaries must distribute inherited accounts within 10 years.
- Effective on January 2020, the penalty imposed on an IRA custodian/trustee for failure to provide a withholding notice has increased from $10 per failure to a maximum of $5,000 per calendar year to $100 per failure, up to a maximum of $50,000 per year.
- Fellowship, stipend and similar payments received by graduate and postdoctoral students is treated as earned income beginning in 2020.
- Home healthcare workers may treat tax exempt “difficulty of care” payments as compensation for purposes of making IRA and/or employer plan contributions.
- Disaster tax relief is available to individuals in presidentially-declared disaster areas who took IRA and retirement plan distributions between January 1, 2018 and July 26, 2018. Up to $100,000 may be exempt from the early distribution penalty tax provided they are repaid within a three year period.
Please remember, we don’t encourage anyone to use their retirement funding early unless absolutely necessary, and you should consult with your tax advisor to review all of the details of the CARES Act and how it applies to your specific situation.