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Astoria Strategic Wealth

C.A.R.E.S. - Part III - Retirement Account Related Distributions

In the wake of the Coronavirus, retirement accounts have been one of the biggest question marks as many Americans look for cash-flow supplements. Can I take money out of my retirement accounts for emergencies? Am I still subjected to required distributions? How are they taxed? Can I pay them back? Some highlights of these provisions follow – as always, there are intricacies as these options are applied – please consult with your tax preparer directly in regards to your specific situation.

Distributions from Retirement Accounts

The C.A.R.E.S. Act allows taxpayers to remove money early from their retirement accounts (individual IRAs or employer plans) without being subject to the normal penalties in order to pay for a Coronavirus related consequence. Coronavirus related consequences include the following:

  • Being diagnosed with COVID-19
  • Having a spouse or dependent diagnosed with COVID-19
  • Financial fall out due to COVID-19
    • Can include being quarantined, laid off or having reduced hours due to the illness
    • Also includes not being able to work due to lack of childcare as a result of COVID-19
    • Owning a business that was closed or saw reduced hours due to COVID-19

These allowed distributions may be taken up to $100,000 and are free of the normal 10% withdrawal penalty. They can then be rolled (paid) back into the account over the next three years.

Note that these distributions will still be considered taxable income, but that income may be spread over three years.

Required Minimum Distributions are Waived in 2020

The C.A.R.E.S. Act has waived required minimum distributions (RMDs) from retirement accounts in 2020. This includes all individual retirement accounts and employer retirement plans. In addition, any RMDs that were delayed last year (2019) for those that turned 70 ½ are also suspended.

This suspension does apply to inherited IRAs in terms of lifetime distributions AND the 5-year rule for those that inherited an account from someone who passed before the required beginning date. In the case of the 5-year rule, 2020 is ignored as a year.

If you have already taken your RMD(s) for 2020, then those RMD(s) may be rolled back into the account(s) if it is done within 60 days of taking the distribution (there are exceptions to this rule for Beneficiary IRAs and even waivers for the 60 days in some cases).

Employer Retirement Plan Loans

The amounts for loans taken from employer retirement plans have also been modified by the C.A.R.E.S. Act. Previously, the maximum loan amount was $50,000 or 50% of the vested balance. C.A.R.E.S. has extended that to a maximum of $100,000 or 100% of the vested balance – whichever is lower. Note that your plan must already allow loans (beyond hardship loans) to take advantage of this ruling.

To qualify for this loan extension, the loan must be taken for a Coronavirus related reason. Those reasons are the same as the reasons outlined above in the Distributions from Retirement Accounts section.

If a qualified loan is taken, the due date for that loan repayment is delayed one year.

Please remember that these summaries are intended to provide general guidance and should not be interpreted as individualized planning, investment or tax advice. Please contact your tax preparer for advice specific to your situation.