On March 27th, the CARES (Coronavirus Aid, Relief, and Economic Security) Act of 2020 was passed by the House and signed into law by the President. This act, by far, is the largest emergency relief and stimulus package in US history, driven in response to the economic crisis caused by the COVID-19 pandemic.
Included in the legislation are several provisions impacting IRA and employer-retirement plans. This communication is intended to give you a high-level overview of just a few of these provisions so that you can make timely changes, if necessary, to your retirement-plan strategy.
- For folks who were expecting to take Required Minimum Distributions (RMDs) from IRAs or employer retirement plans in 2020, this year’s RMDs are now waived. This is a permanent waiver, not just a deferral. This waiver also applies to beneficiaries of inherited IRAs, Roth IRAs, and employer retirement plans.
Also waived are any remaining 2019 RMDs having a required beginning date of April 1, 2020 and not withdrawn by January 1, 2020
- RMDs already taken can be reversed through what is known as an indirect rollover. Distributions taken from an IRA can be returned to the same IRA if 1) the money is returned within 60 days and 2) there must not have been an IRA-to-IRA or Roth IRA-to-Roth IRA transfer within the 12 months preceding the distribution. Beneficiaries are not able to reverse an RMD from an inherited IRA or employer retirement plan.
- Coronavirus-related distributions (CRDs) up to $100,000 from IRA or employer plans will be exempt from the 10% early withdrawal penalty that would normally apply to account owners younger than age 59 ½. Individuals who meet the requirements for being affected by the coronavirus are eligible.
These CRDs would still be taxable to the account owner, however, the ability to pay the tax over a three-year period is the default option for the account owner.
To avoid taxation, CRDs can be repaid to an eligible retirement plan or IRA and treated as having satisfied the 60-day rollover requirements if repaid during the three-year period beginning the day after the CRD was received.
- Now that the Treasury has extended the tax return filing date to July 15, 2020, from April 15, 2020, the date for making 2019 IRA and Roth IRA contributions is also extended to the same date. Normally, IRA contributions for a prior year must be made by April 15th of the following year. There have never been extensions to the IRA contribution deadline, even if the taxpayer filed for a tax filing extension.
The extended deadline also applies to 2019 Health Savings Account, Archer Medical Savings Account, and Coverdell Education Savings Account (ESA) contributions.
- One of the new tax-related provisions allows for up to a $300 above-the-line charitable income tax deduction for folks who take the standard deduction.
- While RMDs are waived for 2020, it still makes sense for those age 70-1/2 or older to make Qualified Charitable Distributions (QCDs) from their IRAs directly to charity. QCDs remain as the most tax-efficient way to make charitable gifts, even if not used to offset the taxability of RMDs, particularly for taxpayers who take the standard deduction.
The CARES Act is a game-changer. Consult with your Relationship Manager by calling (941) 366-7222 to learn how this legislation may impact your financial plan and to make appropriate plan updates to take full advantage of the Act’s provisions.
Tax information presented is not to be considered as tax advice and cannot be used for the purpose of avoiding tax penalties. Neither Canandaigua National Trust Company of Florida nor its affiliated Companies provide tax, legal, or accounting advice. Please consult your personal tax advisor, attorney, or accountant for advice on these matters.