On Friday, March 27, 2020, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This was meant to provide federal government support to the current COVID-19 Pandemic and those economically effected. In addition, the IRS has announced a sweeping series of steps to assist taxpayers.
Department of Treasury & Internal Revenue Service rulings:
As many of you are aware by now, the 2019 federal tax filing deadline has been moved to July 15th, 2020. You would still be able to file an extension from the new deadline to October 15th, 2020.
The deadline for funding traditional or ROTH IRAs has also been moved to July 15th as well. And for business owners, the deadline for company contributions to retirement plans (401ks, SEP IRAs, SIMPLE IRAs) has been moved to July 15th (plus possible extension).
Although the federal government moved the deadline from April 15th to July 15th to file taxes and pay your first quarterly tax estimate for 2020; not all the states conformed to the federal law. For example, in the state of Minnesota, your first quarterly tax estimate for 2020 is still due on April 15th (way to go, Minnesota…). It is important to review your owns state’s tax laws to determine how they have adjusted their deadlines.
Required Minimum Distributions (RMD):
As of January 1st, 2020, the age for which you need to take an RMD from your retirement accounts adjusted from 70 ½ to age 72 (if you weren’t already 70 ½ when the new law passed). However, based on the recent legislation in reaction to COVID-19; all RMDs from retirement accounts for the calendar year 2020 have been waived. Moreover, if you own a beneficiary IRA, those RMD requirements are also waived for 2020.
For those who were 70 ½ and taking RMDs, you can normally send money from your retirement account directly to a qualified charity for up to $100,000 under the Qualified Charitable Distribution rule. This is a tactic done to satisfy RMDs but not actually have to pay income tax on the amount transferred. For 2020, even though there are no RMDs required, you can still do a Qualified Charitable Distribution up to $100,000. However, this will not count toward RMD requirements in future years.
Distributions from Retirement Accounts:
There has been a considerable effort made by Congress to allow the average taxpayer more liquidity during this period of uncertainty. As such, the have been some significant rule changes regarding retirement plan access for calendar year 2020.
It should be noted that these distributions are only allowable under the Coronavirus-Related Distribution (CRD) rules. In other words, if you, your spouse or dependent contract COVID-19, or you have had other financial ramifications due to the pandemic (laid off, furloughed, less hours, no day care), you would meet the standard for taking a CRD. (Of course, we would always encourage you to verify your ability to qualify with your CPA.)
For those who qualify, you can take up to $100,000, in aggregate, from all plans that an individual participates (IRA, 401k, 403b, 457 plan). These distributions would be taxable; but can be spread out over three years beginning in 2020. If you would like to avoid taxation, you would have up to three years to pay back the distribution as a rollover to an eligible retirement plan.
Loans from Qualified Plans
Again, for those eligible for a Coronavirus-Related Distribution (CRD), there is an increase in the loan amounts from $50,000 or 50% of a participant’s vested balance to $100,000 or 100% of the vested balance. This applies to loans taken within a 180-day period beginning 3/27/20.
Payments for any loan taken from 3/27/20 thru 12/31/20 can be deferred for up to 12 months. The interest, however, will accrue on the loan and be adjusted for the time period you defer. Normally, you have a five-year repayment period on loans from qualified plans. This twelve-month payment deferral essentially would turn a five-year loan into a six-year loan.
These highlights are not an exhaustive list of all the changes that were made. There were also adjustments to charitable contribution limits and options to defer payment on federal student loans.
As always, Kristin, Allison, Jennifer, and I are here to serve and support you and your families throughout these uncertain times. We are all working remote, but we are fully functional, and in regular communication. We would be happy to jump on a Zoom meeting anytime to provide any guidance you might need.
Financial Professionals do not provide specific tax/legal advice and this information should not be considered as such. You should always consult your tax/legal advisor regarding a specific tax/legal situation.
Distributions from traditional IRAs and employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% IRS tax penalty. A Roth IRA offers tax free withdrawals on taxable contributions. To qualify for the tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five tax years, and the distribution must take place after age 59½ or due to death, disability, or a first time home purchase (up to a $10,000 lifetime maximum). Depending on state law, Roth IRA distributions may be subject to state taxes.
3037204/DOFU 4-2020
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