The Coronavirus Aid, Relief and Economic Security (CARES) Act—which President Trump signed on Friday, March 27, 2020—includes a number of economic measures to help those affected by the COVID-19 slowdown. Several of the actions are designed specifically for individuals who are retired (or those who have reached the retirement age).
Required Minimum Distribution (RMD) waiver
Most individuals are required to take yearly withdrawals, or required minimum distribution (RMD), from their Individual Retirement Accounts (IRAs) once they reach 70½. (In late 2019, this was changed to age 72 for anyone who reaches age 70½ in 2020 or later.) But under the CARES Act, these requirements will be waived for calendar year 2020. That means those individuals do not need to withdraw funds during the economic slowdown.
Typically, your first RMD after turning 70½ (or 72, if you fall into the new requirement) must happen by April 1. But the CARES Act waiver includes those who would have begun their RMD this April. So if you’ve reached age 70½ during 2019 but did not take a distribution in 2019, neither the 2019 or 2020 RMD would be required this year.
And for beneficiaries who are subject to the five-year rule, the CARES Act gives the beneficiary an additional year to deplete the funds in the inherited IRA.
Because RMDs are calculated based on account balances as of the end of the prior year, the ability to defer them could help millions of retirees, who don't have to take distributions at a time when their portfolios are down substantially from near-record highs of Dec. 31, 2019.
Waiver of early withdrawal penalty
Another key provision of the CARES Act allows an individual under 59½ to take up to a $100,000 coronavirus-related distribution, without incurring the standard 10-percent early withdrawal penalty. This would be for any individual who, in 2020, is diagnosed with COVID-19, whose spouse or dependent is diagnosed, or an individual experiencing opposing financial consequences.
An individual may elect to pay all taxes on the distribution in the current tax year or spread the income over a three-year period. Also, the individual could roll the distributed amount into their IRA within a three-year period.
RMD already taken?
For clients who have already begun taking their RMD and want to return the funds to their IRA, they may be eligible to put the funds back into an IRA as a rollover. The IRA owner must roll over the distributed RMD within 60 days of receiving the distribution and must not have completed a rollover within the past 365 days. Tax that has already been withheld and remitted to the IRS will need to be claimed on their 2020 tax return.
Loans from qualified plans
For 180 days beginning on March 27, 2020, individuals impacted by COVID-19 may be able to borrow up to $100,000 from their qualified employer plan, and loan repayments with due dates between March 27, 2020, and December 31, 2020, may be delayed for one year. Please consult your Plan Administrator for details pertaining to your plan’s provisions.Information presented is subject to change as the Treasury releases additional guidance.
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