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COVID-19 relief can mean changes to retirement plans

Posted on August 7, 2020

In accordance with The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), if you have been adversely financially affected by COVID-19, you may be able to withdraw up to $100,000 from your eligible retirement plan between Jan. 1 and Dec. 30, 2020.

That’s because, say Teipen Selanders Poynter & Ayres’ CPA team, coronavirus-related distributions aren’t subject to the 10% additional tax that generally applies to distributions made before reaching age 59 1/2.

Qualified taxpayers can either repay the distribution to their plan or IRA within three years, or include coronavirus-related distributions as income on their tax returns and spread them over a three-year period.

The limit on loans made between March 27 and Sept. 22, 2020 has been raised to $100,000. Plans may suspend loan repayments due between March 27 and Dec. 31, 2020.

Qualifications for relief
are as follows: The IRS defines a qualifying taxpayer as someone who:

  • Has tested positive and been diagnosed with COVID-19
  • Has a dependent or spouse who has tested positive and been diagnosed with COVID-19.
  • Experiences financial hardship due to them, their spouse or a member of their household due to being quarantined, furloughed, laid off, or having reduced work hours; Being unable to work due to lack of childcare; Closing or reducing hours of a business that they own or operate; Having pay or self-employment income reduced; or Having a job offer rescinded or start date for a job delayed.

Employers can choose whether to implement these coronavirus-related distribution and loan rules.

How do new IRS rules affect required minimum distributions?

  • People who already took a required minimum distribution from certain retirement accounts in 2020 can now roll those funds back into a retirement account.
  • The 60-day rollover period has been extended to Aug. 31, 2020.
  • Taxpayers with required minimum distributions from certain retirement plans can skip them this year. Distributions that can be skipped were due in 2020 from defined-contribution retirement plans including 401(k) or 403(b) plans, as well as an IRA.
  • Among the people who can skip them are those who would have had to take the first distribution by April 1, 2020. This waiver does not apply to defined-benefit plans.

What if you already took your RMD?

If an individual has already taken an RMD in 2020, including someone who turned 70 ½ during 2019, the individual will have the option of returning the distribution to their account or other qualified plan.

Since the RMD rule is suspended, RMDs taken in 2020 are considered eligible for rollover. Therefore, RMDs can be rolled over to another IRA, another qualified retirement plan, or returned to the original plan.

An IRA owner or beneficiary who has already received an RMD in 2020 can also repay the distribution to the distributing IRA no later than Aug. 31, 2020, to avoid paying taxes on that distribution.

For more information or to get your questions answered, the CPA team at TSPA is happy to help. We’ll help you get information you can trust.