CARES Act Required Minimum Distributions

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We find ourselves in a strange world that none of us could have foreseen just a few weeks ago. We are now in a waiting period to see what will turn the tide in the war against the novel coronavirus and COVID-19. It seems evident that the country will be in various stages of social distancing and shutdowns/quarantines for at least another four weeks and possibly even longer as we seek to “flatten the curve” of new cases.

In light of the drastic decline in economic output of the country that has already occurred, the U.S. Congress recently passed the $2.2T stimulus package known as the CARES (Coronavirus Aid, Relief, and Economic Security) Act. There are numerous provisions to help fill the gap in revenue for corporations, municipalities, and households. Today, we want to discuss how the CARES Act could be important as a means of providing relief to investors who may be strapped for cash due to layoffs or work slowdowns. There are three specific rules that apply directly to retirement plans.

  • Required Minimum Distributions are suspended for 2020 for IRA’s and workplace plans.
    For those of you who are normally required to take a taxable withdrawal from your IRA as part of a Required Minimum Distribution, the RMD is not required for tax year 2020. It is currently unclear as to whether this applies to Inherited/Beneficiary IRAs as well, but we will monitor to see when the IRS issues final guidance on this issue. Also, RMDs that have already been made so far this year can be undone if they are eligible to be rolled over.
  • Up to $100,000 will be allowed to be withdrawn penalty-free from workplace or IRA accounts.
    If you are under the age of 59 ½, you can avoid the 10% penalty for early withdrawal. If you are over 59 ½ and not subject to the 10% penalty, you can also carve out this amount and reimburse it within three years if you meet these three criteria:

    1. You have contracted COVID-19; or
    2. Your spouse or dependent has contracted the virus; and
    3. Your economic livelihood has been negatively affected by the pandemic.

    You will still pay taxes on this withdrawal, but the good news is that you can now extend the payback period and defer taxes for up to three years into the future. This provision may be the perfect answer as a type of bridge loan until you can regain your status as a full-time employee.
  • Borrowing limits have been increased for workplace plans.
    Previously, the limit on borrowing from your company retirement plan, such as a 401(k), was $50,000. That limit has now been raised to $100,000 for loans taken within 180 days of the passage of the CARES Act.

Also, don’t forget that the federal income tax filing deadline for 2019 has been extended to July 15, 2020. If you think that you could benefit from any of these provisions, please don’t hesitate to contact your Telarray Advisor.

Please stay safe and protect your loved ones! Also, remember our health care providers and first responders who are sacrificing so much for our country’s survival.

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