The CARES Act and Other Coronavirus-Related Pronouncements
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law. The CARES Act is a massive federal stimulus package designed by Congress to provide aid and assistance to individuals and businesses as the country deals with the coronavirus pandemic. Included in the CARES Act are several provisions that directly impact many HSA and IRA owners as well as IRA beneficiaries. This information is subject to change as we receive further guidance from the IRS.
The CARES Act includes provisions for the following:
- permit an additional withdrawal of up to $100,000 for coronavirus-related distributions (CRDs),
- waive required minimum distributions (RMDs) for 2020 and 2019 RMDs, taken after January 1, 2020 that were required to be taken by April 1, 2020.
We've taken the time to explain these in more detail below, but this information should not be taken as legal, tax or accounting advice. Consult your advisor for assistance in making decisions.
Coronavirus-related distributions (CRDs)
CRDs withdrawn from qualified retirement plans or IRAs on or after January 1, 2020 and before December 31, 2020, and not exceeding $100,000 (in aggregate) per individual, may be eligible for flexible taxation.
Please consult your tax advisor for assistance in determining whether you are eligible for a CRD.
Qualified individuals include:
- those who are diagnosed with the virus SARS–CoV–2 or with the coronavirus disease (COVID-19) by a test approved by the Centers for Disease Control and Prevention,
- those whose spouse or dependent is diagnosed with the virus SARS-CoV-2 or with the coronavirus disease (COVID-19) by a test approved by the Centers for Disease Control and Prevention,
- those who experience adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury.
These withdrawals must still be included in taxable income, but the CARES Act includes a provision allowing taxpayers to include the taxable portion over a three-year period, unless otherwise specified. IRA owners under the age of 59 1/2 who take a distribution are exept from the 10% early distribution penalty that typically applies when IRA owners are under age 59 1/2 and take a distribution.
The 20% mandatory federal income tax withholding is waived for coronavirus-related distributions (CRDs) from qualified retirement plans.
CRDs may be repaid to a qualified retirement plan in which you participate or an IRA at any time during the 3-year period beginning on the day after the date on which the distribution was received. Final IRS regulations regarding the repayment of qualified retirement plan CRDs have not been issued, generally those repayments will be treated as a tax-free rollover. We anticipate additional guidance regarding the timing of payments will be issued during such 3-year period.
What does this mean for me?
If you take a CRD in 2020, you may be required to report this withdrawal when you file your federal income tax return for 2020. Please note that state and local income tax laws may not be subject to the same delays. Please consult your tax advisor regarding your personal situation.
We anticipate additional guidance regarding these changes as well as updated language as it regardes the SECURE Act of 2019.
Temporary Waiver of Required Minimum Distributions (RMDs)
The CARES Act provides for the waiver of all 2020 RMDs. To date, there are no eligibility requirements with this change that are related to the coronavirus disease (COVID-19).
If a 2019 RMD was taken on or after January 1, 2020, which was required to be taken by April 1, 2020, this RMD is eligible to be waived.
As a reminder, qualified individuals include:
- those who are diagnosed with the virus SARS–CoV–2 or with the coronavirus disease (COVID-19) by a test approved by the Centers for Disease Control and Prevention,
- those whose spouse or dependent is diagnosed with the virus SARS-CoV-2 or with the coronavirus disease (COVID-19) by a test approved by the Centers for Disease Control and Prevention,
- those who experience adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury.
Distributions received as RMDs on or after February 1, 2020, and on or before May 15, 2020 may be eligible for rollover on or before July 15, 2020 subject to the rollover rule referenced below. Prior to February 1, 2020 and after May 15, 2020, the 60 day timeframe for rollovers will apply, absent additional guidance. Under current rules, there can only be one rollover across all IRA account types within a rolling 365 day period. The rollover provisions are not intended for Inherited IRA distributions which are not rollover eligible. If you have any questions on this, you should consult with your tax advisor.
It should be noted that if you wish to receive your RMD (or another amount), you may still take the RMD.
What does this mean for me?
It's not too late! If you did not take an RMD by April 1, 2020 and still need to do so, first, contact your tax advisor to seek guidance and then contact us. If you have automatic distributions set up, and do not wish to automatically distribute your RMD, please contact us.
Coronavirus-related Loans
The CARES Act also contains provisions that may allow individuals to obtain a loan or a CRD from a qualified retirement plan (401K, 403B) under more flexible conditions. Not all employers, or their qualified retirement plans, may allow for these types of loans or distributions. If you are interested in obtaining a loan or CRD from a qualified retirement plan we encourage to you to contact your employer’s human resources department and consult your tax advisor for assistance in making your decision.
Tax Filing and Deadline Extension
In addition to the CARES Act provisions, the IRS has postponed the traditional April 15, 2020 federal income tax filing and payment deadline by three months to July 15, 2020.
We continue to recieve guidance on taxpayer relief from the IRS, but for specific inquiries, please consult either the IRS's Filing and Payment Deadlines site or your tax advisor for guidance on what the tax extension might mean for you.
What does this mean for me?
Federal tax filing and payment has been postponed until July 15, 2020.
For more information, please see the Internal Revenue Service's reources for Coronavirus Tax Relief:
IRS: Coronavirus-related relief for retirement plans and IRAs questions and answers