The Effects of the CARES Act on IRAs
On March 27, 2020, the U.S. Congress passed, and President Trump signed into law, the Coronavirus Aid, Relief, and Economic Security Act (“CARES” Act), the third COVID-19 relief bill. The more than $2 trillion package seeks to address financial pressures facing individuals, businesses, and state and local governments due to the pandemic. The law also provides emergency funding for hospitals, testing, and vaccine development.
Notable provisions of the CARES Act that will affect IRAs include:
- Waiver of Required Minimum Distributions (RMDs) for calendar 2020.
- For those who qualify, the CARES Act allows for a coronavirus-related distribution in 2020 from IRAs of up to $100,000 without it being subject to the 10% early withdrawal penalty if the IRA owner is under 59 ½. The income tax on the coronavirus-related distribution may be spread evenly over 3 years. Or, the distribution may be repaid to an eligible retirement plan within a 3-year period.
Required Minimum Distributions (RMDs)
- Required Minimum Distributions (RMDs) for 2020 have been waived for all IRAs and retirement plan accounts. This includes RMDs from inherited IRAs that were established prior to 2020.
- Generally, RMDs are not eligible for rollover. Under the CARES Act, an RMD taken in 2020 is no longer required, it is voluntary, and therefore is not technically an RMD. A 60-day IRA rollover contribution allows account owners to deposit an eligible rollover distribution into an IRA as long as the deposit occurs within 60 days of the original distribution date.
- The 60-day rollover rule does not apply to distributions made to beneficiaries that have inherited a retirement account except for the surviving spouse of the original IRA owner.
Note that an individual is generally limited to one 60-day rollover per 12-month period. Please also note that the IRS may provide additional guidance or clarifications on the availability of rollovers as it did in 2009 when required minimum distributions were previously waived.
IRA owners should consult with their tax advisor on available options regarding any distributions received from an IRA or retirement plan this year (2020).
For more information, including client communication & CORONA-RELATED IRA distributions, please see the complete Important Notice (IN 20-126) attached.
