The Week in Review: April 20, 2020
The CARES Act and Your Retirement
Among other things, the CARES Act aims to help small businesses and those who have lost their jobs. In addition to the stimulus checks for taxpayers who qualify, the act also changes some rules that govern retirement accounts for 2020.
Let’s start with IRA distributions. The CARES Act waives the 10% penalty for individuals under 59 ½ who take up to a $100,000 distribution from an IRA or employer-sponsored retirement plan in 2020.
Requirements to waive the penalty include:
You have been diagnosed with COVID-19, or your spouse or dependent has been diagnosed with COVID-19,
You have experienced adverse financial consequences due to being quarantined, laid off, or your work hours have been cut,
You cannot work because you lack childcare as a result of COVID-19, and
You own a business that has closed or operates under reduced hours because of the virus or meet another reason the IRS decides is acceptable.
If you qualify, you may choose to pay federal income tax on the distribution in 2020 or spread it out evenly over 2020, 2021, and 2022.
If you repay (roll over) the distribution and put the cash back into your IRA, any taxes can be refunded by filing an amended return. In other words, it becomes an interest-free loan.
While an interest-free loan may be tempting, we may want to review other options before tapping into a retirement account. Many plan to repay the loan, but failure to do so will result in the loss of tax-deferred savings and a tax bite than can’t be refunded. Even if the distribution (loan) is repaid, you may be forced to repurchase securities at higher prices.
Please note that additional guidance will be forthcoming from the IRS.
The required minimum distribution (RMD) is waived in 2020, including 401(k), 403(b), and 457(b) plans; SEP-IRAs; SIMPLE IRAs; and traditional IRAs.
The waiver includes RMDs for those who reached age 70 ½ last year and who would be required to take their first RMD by April 1 of 2020. This waiver also includes RMDs from inherited IRAs for 2020.
If you can demonstrate a hardship from the coronavirus, the maximum amount that can be borrowed from a 401(k) generally doubles from $50,000 to $100,000. These limits extend through the end of 2020.
Any payments owed on the loan from the date of enactment through the end of 2020 may be delayed for up to one year.
If you have any questions, feel free to reach out to me, Tyler, or Will.
Two for the Road
On Tuesday, April 7, the TSA screened 97,130 people, down 95% from a year ago. The last time the country averaged 97,000 airline passengers per day was in 1954. —The New York Times, April 9, 2020.
Due to the increase in teleworking during the coronavirus pandemic, Walmart is now selling more tops than bottoms. —NPR, March 28, 2020.
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