News and Updates from the office of John T. Halterman
6 Ways the CARES Act Means Easier Distributions and Loans From Retirement Accounts
   

As you know, the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law on March 27, 2020 and includes provisions that are intended to provide relief for the economic downturn caused by the coronavirus disease 2019 (COVID-19). The following is an overview of some of the provisions for retirement savings accounts.
1. WAIVER OF RMD FOR 2020
Owners of tax-deferred retirement accounts were otherwise supposed to take a required minimum distribution (RMD) from those retirement accounts for 2020, as long as they were at least age 70½ on December 31, 2019.
Generally, the formula for calculating a 2020 RMD includes the fair market value (FMV) of the account as of December 31, 2019. Because of the recent downturn of the stock market, 2020 RMDs-which would have been calculated using the December 31, 2019 FMV-would represent a disproportionate percentage of the current market value of the retirement account.
To address this issue, the CARES Act waives RMDs for 2020. As a result of this waiver, there are no 2020 RMDs for the following accounts:
  • Accounts under defined contribution plans, such as 401(k)s and profit-sharing plan accounts
  • 403(a) qualified annuity plans
  • 403(b) plans
  • An eligible deferred compensation 457(b) plan maintained by a state, political subdivision of a state, and any agency or instrumentality of a state or political subdivision of a state
  • Traditional IRAs (which includes SEP IRAs and SIMPLE IRAs for this purpose).
 
 The CARES Act RMD waiver does not apply to defined benefit plans.
Reminder: RMDs do not apply to Roth IRA owners.
2. WAIVER FOR CERTAIN 2019 RMDS NOT TAKEN IN 2019
While an RMD is usually required to be taken by December 31 of the year for which it is due, an exception applies for the year for which the first RMD is due,
which is usually the year the individual reaches age 70½. For employer-sponsored retirement plans that permit participants to defer RMDs past age 70½, the first RMD would be due for the year a participant retires from working with the employer sponsoring that plan, if that is later than the year the individual reached age 70½.
Under the exception to the December 31 deadline, the RMD for the first RMD year may be taken as late as April 1 of the following year, which would mean a deadline of April 1, 2020 for those whose first RMD was due for 2019. This April 1 deadline is referred to as the required beginning date (RBD).
These 2019 RMDs are split under the CARES Act, with the 2020 RMD waiver applying only to such amounts that were not distributed by December 31, 2019. For those that took those RMDs in 2019, the waiver does not apply.
Please note:  For years after 2019, the RMD age is increased to 72, which would make the RBD for someone who reaches age 70½ after December 31, 2019, April 1 of the year that follows the year in which the individual reaches age 72. Such individuals are not affected by the CARES Act.
3. ROLLOVERS OF 2020 RMDS THAT ARE NO LONGER RMDS
An RMD is not eligible to be rolled over. But, since these 2020 RMD amounts are no longer classified as RMDs because of the CARES Act, those amounts may be rolled over within 60 days of the account owner receiving the amount, 
as long as the amount is eligible for rollover.
An example of an amount that would not be eligible for rollover: a distribution from an IRA that would break the one-per-12-month limitation that applies to rollovers between IRAs. Under this one-per-12-month limitation:
An individual may perform an IRA to IRA rollover [taking a distribution from traditional IRA and rolling it (or a portion of it) over to the same or another traditional IRA-or taking a distribution from a Roth IRA and rolling it over to the same or another Roth IRA] only once during a 12-month period.
All of an individual's traditional and Roth IRAs are aggregated for the purpose of this one-per-12-month limitation.
Caution: No rollovers for non-spouse beneficiaries
Generally, amounts distributed from inherited IRAs and other inherited retirement accounts are not eligible for rollover. Therefore, while the 2020 RMDs are waived for beneficiary (inherited) retirement accounts, distributions that were already taken from these accounts may not be rolled over. An exception applies if the beneficiary is the surviving spouse of the decedent. Under this exception, a spouse beneficiary may roll over a distribution from an inherited IRA or other inherited retirement account, but the rollover must be made to the spouse's own (not a beneficiary's) retirement account.
4. 1-YEAR EXTENSION FOR BENEFICIARIES SUBJECT TO THE 5-YEAR RULE
A beneficiary of a retirement account is subject to the 5-year rule, if:
  • The beneficiary is an individual who inherited a retirement account from an owner who:
    • died by December 31, 2019
    • died before the owner's RBD
    • the 5-year rule was elected by the beneficiary or applied under the terms of the governing plan agreement/document
  • The beneficiary is a non-designated beneficiary-generally a nonperson-who inherited a retirement account from an owner who died before the owner's RBD.
    • Under the 5-year rule, distributions are optional, until December 31 of the fifth year that follows the year in which the retirement account owner died, at which time the entire balance must be distributed.
       
    • The CARES Act extends the 5-year period to 6 years, as long as the 5-year period would have included 2020.
5. CORONAVIRUS-RELATED DISTRIBUTIONS: WAIVERS AND EXTENDED DEADLINES
The CARES Act relaxes the income tax rules that applies to coronavirus-related distributions. A coronavirus-related distribution is defined as one that is made on or after January 1, 2020 and before December 31, 2020 to an individual:
  • 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
  • Whose spouse or dependent is diagnosed with such virus or disease by such a test
  • 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 IRS.
  • Coronavirus-related distributions are capped at $100,000 per taxpayer.
The provisions for coronavirus-related distributions include:
  • A waiver of the 10% early distribution penalty: Distributions from a retirement account are subject to a 10% early distribution penalty or additional tax, if they occur before the retirement account owner reaches age 59½, unless an exception applies. Coronavirus-related distributions have been added to the list of exceptions to the 10% early distribution penalty.
  • Extension of the 60-day rollover deadline: A rollover contribution is generally required to be completed within 60-days of the account owner receiving the distribution. The CARES Act extends the 60-day deadline to three years for coronavirus-related distributions.
  • Three-year income spread. Generally, a distribution from a retirement account is included in the recipient's income for the year in which the distribution is made. The CARES Act allows retirement account owners to spread any portion of a distribution that is required to be included in income, ratably over the three-taxable-year period beginning with the taxable year of the distribution.
6. INCREASE IN EMPLOYER SPONSORED RETIREMENT PLAN LOAN AMOUNTS
For employer-sponsored retirement plans that permit loans, an eligible participant may borrow the lesser of 50% of the participant's vested account
balance or $50,000, whichever is less. The CARES Act increases the $50,000 limit to $100,000, for qualified individuals, for loans made during the 180-day period beginning on March 27,2020 - the date of the enactment of the act. A qualified individual is a person who would meet the requirements for a coronavirus-related distribution.
For participants who already have an outstanding loan under the plan, and whose vested account balance is 10,000 or less, a special calculation will need to be done to determine the loan amount for which such individuals are eligible.
CONCLUSION:
We are here to help in any way we can. Please do not hesitate to contact our team at  304-626-3900  if you have questions, concerns or actions you need our help with. We will be glad to have an in-depth conversation or set up a ZOOM meeting. 

Warm Regards, 


 
A Little Humor to Break Up the Monotony

Mash and the Coronavirus



We specialize in working with a select group of Entrepreneurs, Professional Practitioners, and Individuals in the Retirement Red Zone.

We developed and refined a consistent process that helps our clients in four primary ways:
  • Maintain a Successful and Sustainable Lifestyle in Retirement 
  • Tax Mitigation Planning
  • Family Protection against Unplanned Catastrophic Losses
  • Transfer Family Wealth and Legacy in the Most Efficient and Tax Advantageous Manner
If you would like help in accomplishing these things,
request a listening session today.

In Case You Missed It

We've been sending out quite a few communications lately to keep you informed and at ease during this unprecedented time. In case you've missed any of our communications, here are some other helpful links:

4/10/20: 2020 Tax Reference Guide

4/9/20: 7 Estate Planning Must-Do's in the Time of COVID-19

4/8/20: Coronavirus Care Package #1

4/6/20: What is The Worst Virus Outbreak Ever?

4/4/20: Do the C.R.E.F.I Calculation Now

4/3/20: How the Coronavirus Paid Leave Rules Apply to You 

4/2/20: 3 CARES Act Actions for Small Businesses

4/1/20: 4 Significant Ways the CARES Act Can Provide Financial Relief

3/30/20: Top 8 Changes to the SECURE Act You Need to Know

3/28/20: Managing Anxiety Through Charitable Giving:

3/25/20: Checking In and Helpful Resource Links:


3/23/20: 90 Day Tax Deadline Delay:

3/20/20: Coronavirus and the State of the Markets: 


Beacon Wealth Management
607 East Pike Street,  Clarksburg, WV 26301
304.626.3900

Securities offered through Cambridge Investment Research, Inc., a broker-dealer, member  FINRA / SIPC . Advisory services offered through Cambridge Investment Research, Inc., a Registered Investment Advisor. Beacon Wealth operates independent of Cambridge.
STAY CONNECTED: