CARES Act – IRA Provisions

Coronavirus-Related Distributions

Coronavirus-Related Distributions are distributions of up to $100,000, made from IRAs, employer-sponsored retirement plans, or a combination both, which are made in 2020 by an individual who has been impacted by the Coronavirus because they:
  • Have been diagnosed with COVID-19;
  • Have a spouse or dependent who has been diagnosed with COVID-19;
  • Experience adverse financial consequences as a result of being quarantined, furloughed, being laid off, or having work hours reduced because of the disease;
  • Are unable to work because they lack childcare as a result of the disease;
  • Own a business that has closed or operate under reduced hours because of the disease; or
  • Meet some other reason that the IRS decides to say it is okay.

It seems clear that the intent of Congress was to make this provision broadly available and the general consensus is that the IRS will also take this view.

There are a number of potential tax benefits associated with Coronavirus-Related Distributions. More specifically, these include:
  • Exempt From the 10% Penalty – Individuals under the age of 59 ½ may access retirement funds without the normal penalty that would otherwise apply.
  • Not Subject to Mandatory Withholding Requirements – Typically, eligible rollover distributions from employer-sponsored retirement plans are subject to mandatory Federal withholding of at least 20%, however, they are exempt from this requirement.
  • Eligible to be Repaid Over 3 Years– Beginning on the day after an individual receives a Coronavirus-Related Distribution, they have up to three years to roll all or any portion of the distribution back into a retirement account. Repayments can be made via a single rollover, or multiple partial rollovers made during the three-year period.
  • Income May Be Spread Over 3 Years – By default, the income from a Coronavirus-Related Distribution is split evenly over 2020, 2021, and 2022. A taxpayer can, however, elect to include all of the income from a Coronavirus-Related Distribution in their 2020 income. It may be beneficial if income is down this year.
Enhancements To Loans From Employer-Sponsored Retirement Plans

Many employer-sponsored retirement plans, such as 401(k)s and 403(b)s, offer participants the option of taking a loan of a portion of their retirement assets. 

The CARES Act enhances plan loan rules in the following three ways:
  • Maximum Loan Amount is Increased to $100,000 – In general, the maximum amount that may be borrowed from an employer plan is $50,000. The CARES Act doubles this amount to $100,000 for affected individuals.
  • 100% of the Vested Balance May Be Used – In general, once an individual has a vested plan balance that exceeds $20,000, they are only eligible to take a loan of up to 50% of that amount (up to the normal maximum of $50,000). The CARES Act amends this rule for affected individuals, allowing them to take a loan equal to 100% of their vested plan balance up to the $100,000 maximum amount.
  •  Delay of Payments – Any payments that would otherwise be owed on the plan loan from the date of enactment through the end of 2020 may be delayed for up to one year.

Required Minimum Distributions Are Waived In 2020

Section 2203 of the CARES Act amends IRC Section 401(a)(9) to suspend Required Minimum Distributions (RMDs) during 2020.

This applies to Traditional IRAs, SEP IRAs, and SIMPLE IRAs, as well as 401(k), 403(b), and Governmental 457(b) plans. Furthermore, the relief applies to both retirement account owners, themselves, as well as to beneficiaries taking stretch distributions. In one somewhat surprising twist, the CARES Act not only eliminates RMDs for 2020 but any RMD that otherwise needed to be taken in 2020. More specifically, individuals who turned 70 ½ in 2019, but did not take their first RMD in 2019 (and thus, would have normally been required to take such distribution by April 1st, 2020, as well as a second RMD for 2020 by the end of 2020) do not have to take either their 2019 RMD or their 2020 RMD! Thus, these procrastinators get to escape two RMDs instead of just one! Voluntary distributions are still allowed, including Qualified Charitable Distributions (QCDs) for IRA owners and IRA beneficiaries age 70 1/2 or older.

Returning Unwanted 2020 RMDs That Have Already Been Distributed:

Despite the fact that we’re not quite yet through the first quarter of the year, a number of individuals have already taken their RMDs – or at least, what they thought was their RMD at the time – for 2020. Now, in light of the CARES Act, these individuals may wish to ‘return’ unwanted and no longer necessary RMDs.
For IRA, 401(k), and other retirement account owners who have already taken RMDs to this point in 2020, it may be possible to reverse those withdrawals in two different ways. In a best-case scenario, the ‘RMD’ distribution will have taken place within the last 60 days, and the distribution won’t be prevented from being rolled over due to the once-per-year rollover rule (either because it came from a plan, is going to a plan, or because no IRA-to-IRA rollover has been made within the past 365 days). In such instances, an individual can simply write a check, or otherwise, transfer an amount equal to the ‘RMD’ back into a retirement account before the end of the 60-day rollover window. For retirement accounts owners who took their RMD very early in the year, and for whom the 60-day rollover window has already expired, there is another potential approach. If it can be shown that the individual has been impacted by the COVID-19 crisis enough to qualify under the liberal guidelines outlined earlier for a Coronavirus-Related Distribution, then the rollover can still be completed… anytime for the next three years from the date, the distribution was received. Coronavirus-Related Distribution provision can apply to distributions as early as January 1, 2020. Beneficiaries who have taken RMDs already are NOT eligible to make a rollover. As such, even if the distributed RMD was made within the last 60 days, there is no way to get it back into the inherited retirement account.



Jay McGowan, CFP®, CPA, PFS
Senior Vice President
Director of Financial Planning
Email Jay McGowan Here



Fi Plan Partners is an independent investment firm in Birmingham, AL, serving clients across the nation through financial planning, wealth management and business consulting. Fi Plan Partners creates strategies in the best interest of their clients using both fee based investing and transactional investing.

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