Helpful miscellaneous articles regarding
our retirement plan and planning. Like
you, I review my retirement nestegg and plan from time to time. Recently, I went though some continued
education for some credentials I maintain and it occurred to me that we all
could use a review about these issues.
So with your help, we will share and post articles and info that may be
helpful and of interest to many of you in this section.
Cares Act and IRA RMD
Distribution Suspension
Don’t need to take RMD this year!
From: mjoh419065@aol.com
To: dwskjerven@aol.com
Sent: 3/31/2020 2:56:29 PM Central Standard Time
Subject: Re: IRA distribution 2020
To: dwskjerven@aol.com
Sent: 3/31/2020 2:56:29 PM Central Standard Time
Subject: Re: IRA distribution 2020
Dave,
The IRS has not published this, but I got it from
one of my reliable sources (when they are not drinking beer).
1. RMD's
from IRA's and 401k's do not have to be taken
2. RMD's
from 2019 that have not been taken as yet
(that would be people who were not 70 1/2 before 12/31/2018)
do not have to be taken.
3. 2020
RMD's that have been taken can be rolled back in within sixty days. ( I did not
get clarification on whether the sixty days began with bill passage or
withdrawal).
Clint
Not sure if you already are aware of this but this is part of the Bill. You shouldn't have to take any forced distribution
Mar 30, 2020
Retirement Plan Relief in the CARES Act
Smith,
Gambrell & Russell, LLP.
On March 27, 2020,
President Trump signed the Coronavirus Aid, Relief, and Economic Security Act
(the “CARES Act”). Among many other provisions, the CARES Act allows
participants affected by the 2020 coronavirus pandemic to have greater access
to retirement funds. The new law loosens the in-service distribution
restrictions that apply to many retirement plans and significantly eases the
tax burden on qualified individuals who take distributions from qualified
retirement plans or IRAs.
The CARES Act also (i)
for qualified individuals, expands the qualified plan loan rules; and (ii) for
all retirement plan participants and IRA owners, following a cue from relief
issued after the 2008 financial collapse, temporarily waives required minimum
distributions from defined contribution plans and IRAs for 2020. Employers
with defined benefit plans may delay required contributions and may use their
plan’s prior funding status for purposes of funding-based restrictions on
benefits and amendments.
Qualified Individuals
Eligible for Relief
Most of the provisions
providing relief apply to “qualified individuals” consisting of persons who:
- are diagnosed with COVID-19;
- have a spouse or tax dependent who is diagnosed with COVID-19; or
- experience adverse financial consequences as a result of:
·
being quarantined due to
COVID-19;
·
being furloughed or laid
off or having work hours reduced due to COVID-19;
·
being unable to work due
to lack of child care due to COVID-19; or
·
the closing or reduction
in hours of a business owned or operated by the participant due to COVID-19.
A plan administrator may
rely on a participant’s certification that the participant satisfies the
requirements to be a qualified individual. No documentation is required.
Limitation on
Distribution Amounts
If a person is a
qualified individual, favorable tax provisions apply to a maximum of $100,000
in “coronavirus-related distributions” from qualified retirement plans and
IRAs. A “coronavirus-related distribution” is any distribution made to a
qualified individual between January 1, 2020, and December 31, 2020. There
is no requirement that the amount of the coronavirus-related distribution be
limited to the amount of the qualified individual’s actual financial needs.
A qualified individual
may take coronavirus-related distributions from multiple sources, such as both
a qualified retirement plan and an IRA, but the total amount of distributions
eligible for favorable tax treatment is limited to $100,000.
Types of Relief for
Coronavirus-Related Distributions
In-Service Distributions
Allowed. Normally, participants
who are still employed are restricted from taking distributions from 401(k),
403(b) and 457(b) plans. The CARES Act allows plan sponsors to
permit qualified individuals to take “coronavirus-related distributions”
through December 31, 2020. The aggregate amount of all
coronavirus-related distributions made to a qualified individual by a single
plan (or by multiple plans maintained by a single plan sponsor or members of a
single controlled group) cannot exceed $100,000
Tax Treatment of
Coronavirus-Related Distributions.
For up to $100,000 in coronavirus-related distributions made to an individual
between January 1, 2020, and December 31, 2020, the CARES Act:
- Eliminates the 10% “early distribution” penalty that generally applies to distributions from retirement plans and IRAs before age 59½;
- Exempts distributions from the 20% Federal tax withholding that normally applies to distributions (other than hardship distributions) that are paid directly to participants;
- Allows participants to avoid taxation by repaying distributions within 3 years; and
- Allows participants to elect to spread the inclusion of income from distributions over 3 years.
Increased Loan Amounts
and Delayed Repayment. For retirement plan
loans to qualified individuals made between March 27, 2020 and September 23,
2020, the CARES Act:
- Increases the maximum loan amount from $50,000 to $100,000; and
- Allows participants to take the full amount of their vested benefit as a loan, rather than limiting the loan amount to 50% of their vested balance.
The CARES Act also
delays the due date for loan repayments for qualified individuals that are due
between March 27, 2020 and December 31, 2020 for 1 year, and extends the
maximum 5-year repayment period accordingly.
Waiver of Minimum
Distribution Requirements
Defined contribution
plans generally must begin making “required minimum distributions” (RMDs) by
April 1 of the calendar year following the later of the year in which the
participant reaches age 70½ or the year in which the participant terminates
employment, and then continue making RMDs as of the end of that and each
succeeding calendar year. Distributions from IRAs (other than Roth IRAs)
also must begin by April 1 following the year in which the IRA owner turns 70½.
For all retirement plan
participants and IRA owners (and not just qualified individuals), the CARES Act eliminates the requirement that RMDs be made from defined
contribution plans (other than non-governmental 457(b) plans) and IRAs in 2020.
This avoids the need for plan participants and IRA owners to liquidate
investments at a time when the stock market reflects the economic impact of the
coronavirus pandemic.
Note that although the
Setting Up Every Community for Retirement Enhancement Act of 2019 (the “SECURE
Act”) changed the age triggering RMDs from 70½ to 72, this change did not apply
to participants who attained age 70½ before 2020, so the changes made in the
CARES Act are only relevant to employees whose RMDs were based on age 70½.
The CARES Act also
extends by 1 year the period over which distributions must be made due to an
employee’s or IRA owner’s death.
Defined Benefit Plan
Relief
Employers with defined
benefit plans may delay contributions otherwise due in 2020 until January 1, 2021,
and may elect to use the plan’s funding status as of the plan year ending in
2019 to determine whether the plan is subject to funding-based restrictions on
lump-sum benefits and amendments increasing benefits for plan years that
include the 2020 calendar year.
Plan Amendment Deadline
Plan sponsors may begin
operating their plans in accordance with the CARES Act immediately. Plan
sponsors will generally have until the end of the first plan year beginning on
or after January 1, 2022 to amend their plans.
(As with any of these informative articles,
anyone who needs someone to talk to about
this
very subject contact me and I can direct you to a knowledgeable advisor).
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