Gamble Jones

CARES Act and Retirement Account Distributions

In response to the COVID-19 pandemic, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was enacted on March 27th.  The sharp market declines during March prompted a provision that waived required minimum distributions (RMDs) from most retirement accounts for 2020 and created the Coronavirus-Related Distribution rules for retirement account owners distinctly impacted by the pandemic.

Required Minimum Distributions (RMDs) from most retirement accounts have been waived for 2020. The waiver applies to IRAs including SEP IRAs and SIMPLE IRAs and extends to defined contribution plans (403(a), 403(b), 401(a), and 401(k)) and Governmental 457(b) plans. Please consult your plan administrator if you have a defined benefit or pension plan.

A few of the most frequently asked questions regarding the 2020 RMD rules follow.

Q: Will I need to take an extra distribution next year as a result of the 2020 RMD wavier?

A: No. You will not.

Q: May I return the distributions I’ve taken this year?

A: Yes, but with restrictions. Under the IRS’ rollover rules, you may roll over (re-deposit) distributions within 60 days following the distribution date.  If you’d like to roll over the IRA or retirement plan distributions you’ve received within the last 60 days, please contact us at your earliest convenience.  The IRS limits the number of rollovers per 12-month period between certain accounts, so we will need to review your specific situation.

Q: If I turned 70.5 last year, am I required to take the 2019 RMD which had the distribution deadline of April 1, 2020?

A: No. Taxpayers who waited until 2020 to take their very first RMD by the April 1, 2020 deadline will be able to roll over the distribution if in compliance with the 60-day rollover rules. 

Q: If I had taxes withheld on distributions taken earlier this year and I wish to roll over some or all the funds distributed, how should I proceed?

A: For example, if you distributed $10K (gross) and withheld $1,000 for federal taxes, you may roll over $10K to offset the distribution. Any funds withheld are typically sent to the Treasury or state agency immediately, so these funds can only be recovered when you file your 2020 income tax return(s). 

The CARES Act created a 2020-specifc distribution called the Coronavirus-Related Distribution to allow those impacted by the pandemic to access their retirement savings in a tax-friendly manner.  To qualify for preferential treatment, the distribution must take place in 2020 and be limited to $100,000, and the individual must meet the act’s definition of a person impacted by the virus.  Such persons include someone…

“(I) who is diagnosed with the virus SARS– CoV–2 or with coronavirus disease 2019 (COVID– 19) by a test approved by the Centers for Disease Control and Prevention,

(II) whose spouse or dependent (as defined in section 152 of the Internal Revenue Code of 1986) is diagnosed with such virus or disease by such a test, or

(III) who experiences 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 (or the Secretary’s delegate).” – CARES Act. SEC. 2202 

The potential preferential distribution treatment for those who qualify may include:

  • An exemption from the 10% early distribution penalty.
  • Avoidance of the mandatory withholding retirements of some employer sponsored plan distributions.
  • Extension of the rollover window to up to three years.
  • The option to spread the tax burden of the distribution over three years.

Please contact us if you have any questions about the CARES Act and how it may apply to you.  We would be happy to review your retirement account distributions and the merits of rolling over recent retirement account withdrawals.