Changes to Retirement Plan Distributions for 2020
As you are probably aware, on March 27, 2020 Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This act had many provisions for relief, loans and stimulus for businesses and individuals. It also had provisions strictly related to distributions from IRAs and other defined contribution plans. Some of these provisions are summarized as follows:
- For 2020 the CARES Act instituted a waiver of the 10% early distribution penalty from IRAs and defined contribution plans. This waiver is for any distributions made by an individual who (or whose family) is infected with the Coronavirus, or who is economically harmed by the Coronavirus. Penalty-free distributions are limited to $100,000, and possibly can be recontributed to the plan in the future. Please note the waiver only applies to the penalty; distributions will still be subject to federal and state income taxes if they are not recontributed. Income arising from these distributions will be spread over 3 years unless the taxpayer elects out.
- Required minimum distributions (RMDs) that otherwise would have to be made in 2020 from IRAs or other defined contribution plans have been waived. This includes distributions that would have been required by April 1 2020 due to taxpayer turning 70 ½ in 2019.
- The ACT also extends the 60-day rollover period for distributions in 2020. Under the CARES act the rollover period can end no earlier than August 31, 2020. So, distributions made earlier in the year can be repaid by August 31, 2020, and will be treated as a rollover for excluding the RMD from income. IF RMDs were taken before you were aware of the changes, they can still be repaid, and treated as a rollover and not a distribution. This rollover will not be counted as a rollover for purposes of the one rollover per 12-month period limitation or the restriction on rollover for non-spousal beneficiaries.
Please note this can be a very technical process with adverse tax consequences if handled incorrectly. Please contact our office if you would like to discuss any of this information.