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  • Barry Boscoe

The CARES Act Relief

Relief is here! While COVID-19 has cast uncertainty across our financial world, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law March 27, 2020, provides a fiscal stimulus to boost the economy. The act’s retirement provisions provide a waiver of required minimum distributions (RMDs) for 2020 and Coronavirus-related distributions (CRDs).

Below is a summary of key 2020 updates related to the CARES Act that pertain to traditional IRAs and workplace plans such as SEP, SIMPLE, 401(k), 403(b), and 457(b) plans.

Required Minimum Distributions

Waiver of 2020 RMDs—RMDs are not required to be taken for 2020. For clients who were required to begin taking RMDs in 2019, and had until April 1, 2020, to do so, the waiver applies to RMDs that were not taken before January 1, 2020. It also applies to 2020 inherited or stretch RMDs for clients who own an inherited individual retirement account (IRA). It appears that RMDs being waived will not need to be made up at a future date.

Returning RMDs Previously Taken in 2020—Depending on when you took your RMD in 2020, you may be able to return the distributions as an indirect rollover. It is best you contact your plan administrator or tax advisor on what options may be available and the deadlines for returning your RMDs. Please note that the once-per-year rule for rollovers applies. Individuals can only put one distribution back into an IRA as an indirect rollover per year. If you are taking RMDs systematically throughout the year, you may, however, return multiple withdrawals as one indirect rollover.

Although RMDs taken in 2020 can be returned, the IRS does not allow insurance companies to reverse the taxes withheld on returned RMDs. You are encouraged to consult your tax advisor to understand how your personal income tax return will be impacted if taxes were previously withheld on RMDs that have been returned

Deferring 2020 RMDs to 2021—The IRS waiver of 2020 RMDs has provided clients with the option to take their RMDs as planned, take only a portion, or defer their payment(s) all together. To defer RMDs, you must contact the specific insurance company if taking RMD’s from an annuity, or the insurance company will continue to make any payments to you based on the instructions on file.

Coronavirus-Related Distributions (CRDs)

Qualified individuals at any age can take up to $100,000 in CRDs; for those under age 59½, the 10% early distribution tax (excise tax) will be waived for CRDs taken between January 1, 2020, and December 31, 2020. The CRD provision does not affect contract provisions, surrender charges, market value adjustments, or penalty-free withdrawals if taking from an annuity.

Qualified individuals who can take a CRD include:

1. Individuals diagnosed with COVID-19.

2. Individuals who have a spouse or dependent diagnosed with COVID-19.

3. Individuals who experience adverse financial consequences because of COVID-19.

Clients may want to consult their tax advisor to determine if they qualify for a CRD and learn how distributions may impact their future personal income tax returns.

Extension of Deadline to File and Pay Federal Taxes and Make 2019 IRA Contributions

Although not part of the CARES Act, the IRS has extended until July 15, 2020, the deadline to file and pay federal taxes and make 2019 IRA contributions. It’s important to note that 2019 contributions postmarked by July 15, 2020, can be received and applied to until July 15, 2020. You should include 2019 in the memo section on checks or provide a letter of intent stating that the contribution is for 2019.

As always it is best to consult your tax advisor to review any action dealing with taxes.

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