Retirement Account Info

IRAs

IRA Early Distribution Penalty

The CARES act waives the 10% early distribution penalty on up to $100,000 of 2020 distributions (taken between 1/1/2020 and 12/31/2020) from IRAs for coronavirus related distributions*. Tax would still be due, but the tax can be spread evenly over three years. Funds can also be repaid over the three-year period.

Extended deadline for 2019 IRA contributions

The date for making 2019 IRA and Roth IRA contributions is extended to 7/15/2020. Be sure to check with your financial services companies to ensure contributions made after 4/15/2020, that were intended for tax year 2019, are coded properly as 2019 contributions. It may take time for some financial service companies’ computer systems to catch up with the new rules.

In addition, the extended deadline applies to 2019 Health Savings Account, Archer Medical Savings Account, and Coverdell Education Savings Account (ESA) contributions.

Required Minimum Distributions (RMDs)Waived for 2020

RMDs are not required for 2020. This applies to those that have been taking RMDs and those that were planning to start taking RMDs this year.

What it means for 2019 RMDs not yet taken

The RMD waiver also applies to 2019 RMDs that are normally due by April 1, 2020. The waiver applies to IRA owners who turned 70 ½ in 2019.

To explain, when folks begin taking RMDs, they have an option of taking all or part of the first year distribution in the year they turned 70 ½ or deferring any part of that RMD until April 1st of the following year. If they wait until the following year, they must take their first two RMDs in the following year. The result is a bunching of RMD income in the same year

IRA Beneficiaries subject to the 5-year rule

Folks that inherited an IRA in 2015 or later and who are subject to the 5-year payout rule also have the required distribution waived for 2020. Typically, this only applies to non-designated beneficiaries who inherited before the deceased IRA owner reached his required beginning date (April 1st following the age 70 ½ year).

Beneficiaries now have one more year, until Dec. 31, 2021, to empty their account. For beneficiaries who inherited from 2015 to 2020, the 5-year rule becomes a 6-year rule.

Can you undo RMDs already taken?

If you already took your 2019 or 2020 RMDs, there is currently no guidance on being able to undo RMDs already taken. We will watch for further comments on such.

Employer Sponsored Plans

Employer Plan Early Distribution Penalty

The CARES act waives the 10% early distribution penalty on up to $100,000 of 2020 distributions from employer sponsored retirement plans for “affected individuals”. Tax would still be due, but the tax can be spread evenly over three years. Funds can also be repaid over the three-year period.

Required Minimum Distributions (RMDs)Waived for 2020

RMDs are not required for 2020. This applies to those that have been taking RMDs and those that were planning to start taking RMDs this year.

Employer Sponsored Plan Loan Changes

Plan loan dollar limits will be temporarily increased to the lesser of $100,000 or 100% of the participant’s vests balance. (applies to loans taken within 180 days of CARES Act enactment)** One-year delay for loan repayments due in 2020 with subsequent payments adjusted to take into account the delay. Loan durations (inclusive of the 5-year maximum) may also be disregarded during this period, if payments are delayed.

*A coronavirus-related distribution is one made to an individual: (1) who is diagnosed with COVID-19, (2) whose spouse or dependent is diagnosed with COVID-19, or (3) who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19, or other factors as determined by the Treasury Secretary. The employee can self-certify to their eligibility.

** Need additional guidance from DOL on 100% use of account balance.