We hope you are staying safe and healthy. The confusing landscape of this environment is changing day by day, even hour by hour. Rest assured, however, that we are still here and working for you. You are on our minds and we have you covered. On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law. The Cares Act contains a long list of features that are meant to buffer you from the hardships that are arising during this unprecedented time. We know you have questions about how the Cares Act impacts your IRA. We want to take a few moments to answer some of these questions.
Required Minimum Distributions: By now, you may have heard that they have suspended 2020 RMDs. This is a welcome relief to IRA owners that don’t want to be forced to take a distribution during this time. How does this affect you?
- If you are a living account owner, over the age of 70 ½ as of the end of last year, you most likely received a Required Minimum Distribution notice from us at the end of January. This notice informed you of the amount that you were required to take as a 2020 RMD. As a result of this Act, you no longer have to take this 2020 RMD. You can disregard the notice we originally sent you for 2020. If you have already taken a distribution in 2020 towards your RMD, you might have the right to roll it back to the IRA, especially if you are within 60 days of the original distribution (provided you haven’t already done a 60-day rollover in the past 12 months). Since this is a time sensitive transaction, please contact your Relationship Manager as soon as possible if you would like to discuss your situation.
- If you are a beneficiary of an inherited IRA, you are no longer required to take a 2020 RMD. Unfortunately, if you have already taken your RMD this year, you do not have the option to rollover a distribution from an Inherited IRA under the law as it stands today.
Prior Year Contribution Deadline Extended for your IRAs: Prior to the Cares Act, the IRS extended the tax filing deadline to July 15th, 2020. This also means that you have until July 15th to make a 2019 contribution to your Traditional or Roth IRA. Please consult with your CPA to determine if you are eligible to make a deductible 2019 Traditional IRA contribution or a 2019 Roth Contribution. If you get adequate counsel to make a prior year contribution, please be sure to indicate “2019 contribution” in the memo section of your check so that we can attribute it to the correct year.
Corona-Virus Related Distributions: We realize that no one WANTS to take a distribution during volatile market times. However, in the event that you need to request a Corona-virus related distribution (up to $100,000), you will NOT be subject to the 10% early withdrawal penalty that is normally assessed when you are under age 59 ½. Although you will still potentially owe income tax on your withdrawal, you will have the option to spread the taxable income over 3 years. You even have the option of rolling these distributions back into your IRA within 3 years to avoid the immediate taxation.
How do you determine if the request is “Coronavirus-related”? Coronavirus-related distributions are any distribution from an IRA in 2020 made to an individual:
- who is diagnosed with virus SARS-CoV-2 or COVID-19 by a test approved by the Centers for Disease Control and Prevention,
- whose spouse or dependent, is diagnosed for such illness by such test, or
- who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reducing hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Secretary of the Treasury (or the Secretary’s delegate).
Rest assured that we are committed to keeping up with all the latest changes in this environment. As things become clearer, we will keep you informed as well. Feel free to call your Relationship Manager if you have any questions. In the meantime, stay safe and stay home if you are able!
We will get through this trying time together.