Relief for Eligible Taxpayers from Retirement Plans

The Internal Revenue Service (IRS) has promoted the Coronavirus Aid, Relief, and Economic Security (CARES) Act as containing favorable tax treatment for eligible individuals for withdrawals from retirement plans and IRAs. There are some stipulations that we will cover below. As always, your Anderson ZurMuehlen expert is available for your questions and can be reached here.

Required Minimum Distribution Waiver for 2020

Don’t miss the August 31, 2020 deadline if you previously took a required minimum distribution (RMD) for 2020 from your retirement account and would like to roll it back in.  On June 23rd, the IRS announced that all taxpayers who already took RMDs in 2020 are now able to roll back and return those distributions before August 31, 2020.  This includes distributions from employer-sponsored plans, inherited IRAs and IRAs.

When are my retirement funds available?

Under the CARES Act, individuals eligible for coronavirus-related relief may be able to withdraw up to $100,000 from IRAs or workplace retirement plans before Dec. 31, 2020, if their plans allow. In addition to IRAs, this relief applies to 401(k) plans, 403(b) plans, profit-sharing plans, and others.
 
The following is applicable to coronavirus-related withdrawals:

  • May be included in taxable income either over a three-year period (one-third each year) or in the year taken, at the individual’s option,
  • Are not subject to the 10% additional tax on early distributions that would otherwise apply to most withdrawals before age 59½,
  • Are not subject to mandatory tax withholding, and
  • May be repaid to an IRA or workplace retirement plan within three years.

Is it possible to take out a loan from my retirement fund?

Individuals eligible to take coronavirus-related withdrawals may also, until Sept. 22, 2020, borrow as much as $100,000 (up from $50,000) from a workplace retirement plan, if their plan allows. Loans are not available from an IRA.
 
For eligible individuals, plan administrators can suspend, for up to one year, plan loan repayments due on or after March 27, 2020, and before Jan. 1, 2021. A suspended loan is subject to interest during the suspension period, and the term of the loan may be extended to account for the suspension period.
 
If you are unsure, check with your plan administrator to see if your plan offers these expanded loan options.

Am I eligible?

To be eligible for COVID-19 relief, coronavirus-related withdrawals or loans can only be made to an individual if:

  • The individual is diagnosed with COVID-19 by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetics Act);
  • The individual’s spouse or dependent is diagnosed with COVID-19 by such a test; or
  • The individual experiences adverse financial consequences as a result of:
    • The individual being quarantined, being furloughed or laid off, having work hours reduced, being unable to work due to lack of childcare, having a reduction in pay (or self-employment income), or having a job offer rescinded or start date for a job delayed, due to COVID-19;
    • The individual’s spouse or a member of the individual’s household (that is, someone who shares the individual’s principal residence) being quarantined, being furloughed or laid off, having work hours reduced, being unable to work due to lack of childcare, having a reduction in pay (or self-employment income), or having a job offer rescinded or start date for a job delayed, due to COVID-19; or
    • Closing or reducing hours of a business owned or operated by the individual, the individual’s spouse, or a member of the individual’s household, due to COVID-19.

More Information on this subject can be found here:

Retirement plan recipients can learn more about these provisions in IRS Notice 2020-50. The IRS has also posted FAQs that provide additional information regarding this relief.

We know this is an unsure time for everyone and are doing our best to provide timely, accurate information to you. If you have any questions or would like to know more about retirement funds, please contact us!

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