The Coronavirus Aid, Relief, and Economic Security (CARES) Act recently passed by Congress and signed into law by the President contains provisions offering temporary relief and flexibility for health savings accounts (HAS), Coverdell education savings accounts (CESA) and individual retirement accounts (IRA). Below is a high-level summary of these provisions. This is not an exhaustive summary of the cares act changes. For more information and guidance on how these provisions might impact you, please consult with your tax professional.
- Due to the tax return filing deadline for 2019 federal income tax returns being extended to July 15, 2020, the deadline for making a 2019 contribution to IRA, CESA or HAS account has been extended to July 15.
- Required minimum distributions (RMDs) are suspended for 2020. All RMDs are suspended, including those for inherited IRAs as well as traditional IRAs for those over 70 ½.
- We urge you to carefully consider whether to take advantage of the suspension, and always consult with your tax professional regarding pros and cons specific to your tax situation.
- If you have already taken your 2020 RMD, you may be required to include it in your gross income and pay taxes on it. If you would like to take advantage of the 2020 RMD suspension, you may be able to redeposit the funds as a rollover contribution. Please consult your tax professional before making a decision.
- If you are an IRA owner who had attained the age of 70 ½ in 2019, and therefore you have a required beginning RMD date of April 1, 2020, you are allowed to skip your 2019 RMD visit as if it has not yet been taken.
- Withdrawals of up to $100,000 (in the aggregate) from qualified retirement plans (that choose to permit them) and IRAs during 2020 coronavirus-related purposes may receive special tax treatment.
- Individuals under the age of 59 ½ can withdraw up to $100,000 from specified qualified retirement plans and IRAs during 2020 without a 10% early withdrawal additional federal income tax, if the individual meets coronavirus-related eligibility requirements (see below).
- The 20% mandatory federal income tax withholding is waived for coronavirus related distributions (CRDs) from qualified retirement plans. Unless you elect otherwise, CRDs will not be included in your income for federal tax purposes ratably over 3 years. Note that the state and local income taxes may not be subject to this delayed tax treatment.
- CRDs may be repaid to a qualified retirement plan in which you participate or an IRA at any time during the three-year period beginning on the day after the date on which the distribution was received, and those repayments will be treated as a tax-free rollover, without regard to any contribution. Consult your tax advisor for more information on your personal circumstances.
You are eligible for a CRD if you certify that you, your spouse or dependent is diagnosed with COVID-19 (or SARS-CoV-2) or your experience certain adverse financial consequences as a result of (i) being quarantined, furloughed or laid off or having to work reduced hours because of the virus (or disease), (ii) being unable to work due to lack of child care because of the virus (or disease), (iii) closing or reducing hours of a business owned or operated by you due to the virus (or disease), or (iv) other factors as determined by the US Department of Treasury.
We are here to assist you should you have any questions.