Q&A with Amanda Miller, Vice President, Alpine Bank Wealth Management

Q: Did the CARES Act ease retirement account rules?

A: The short answer is yes!

The recently enacted Coronavirus Aid, Relief, and Economic Security (CARES) Act, together with new IRS and Treasury announcements, have temporarily changed deadlines, age restrictions and dollar amounts for certain retirement account transactions, helping to put a little more money into taxpayers’ pockets during this financial crisis. Many of them affect the rules passed by the  SECURE Act in 2019. Here is a brief summary of the changes and how they may impact you.

New Tax Filing and Payment Date

As you probably are already aware, the tax filing and payment date for 2019 returns was pushed back from April 15, 2020 to July 15, 2020.  What this also means is that you have additional time to make your 2019 deductible contribution to your traditional IRA and potentially lower your tax bill.  Note that the maximum contribution amounts for 2019 returns are $6,000, and $7,000 for those over age 50.

No RMDs in 2020

For those over age 70 ½ before January 1, 2020 (now changed to age 72 by the Secure Act) mandatory yearly withdrawals, or Required Minimum Distributions (RMDs), are required to be made from retirement accounts.

Annual RMDs are calculated based on a retirement account’s value at the end of the previous year and IRS life expectancy tables. With the economic downturn in 2020 and the resulting decrease in the stock market, taxpayers would have been forced to take their RMDs, and pay taxes on them, based on the higher account values of December, 2019.

The CARES Act has now completely eliminated RMDs for 2020, allowing you to build up more money in your retirement account and save on tax payments. This includes RMDs that were due by April 1, 2020, for those who had turned age 70 ½ in 2019, the previous age limit.

Guidance has not yet been issued on the treatment of RMDs already made in 2020, prior to the CARES Act effective date, and whether or not they can be redeposited into a retirement account, but experts expect this to be resolved by legislative or regulatory action soon.

Coronavirus-Related Distributions (CRDs) for Affected Individuals

The CARES Act provides relief from early distribution penalties for those under age 59 ½ who are physically or financially affected by the Coronavirus. Normally, an early distribution would be subject to a 10% penalty tax in addition to regular income taxes on the withdrawn amount.

The CARES Act changes that through December 30, 2020, allowing CRDs, of up to $100,000 for affected individuals without a penalty.  Although early distributions are usually recommended only as a last resort, as they will reduce the funds available for retirement, CRDs are an option for those currently experiencing financial hardship. 

You can take the distribution from your IRA, or from a qualified employer-sponsored plan if your employer offers this option. The taxes owed on the CRD will be spread out over three years. The CRD can also be repaid and redeposited into your retirement account within three years, potentially reducing some of the tax impact.

Loan Relief

The CARES Act also changes the rules on loans from eligible retirement plans for affected individuals.

The maximum amount that can be borrowed from a 401(k) has been doubled.  Formerly limited to $50,000, the new law increases the amount to the lesser of $100,000 or the individual’s vested account balance for loans made from March 27, 2020, through September 22, 2020.

Additionally, the new law extends the due date for repayments for loans outstanding on or after March 27, 2020. These can be delayed by one year for any repayments that were due from March 27, 2020, through December 31, 2020.

Since these new loan provisions are optional for employer plans, make sure you check with your plan administrator to see which, if any, of these new provisions your plan has adopted.

Stay tuned for updated guidance from Treasury and the IRS, and remember, your local banker at Alpine Bank is here to help you during these difficult times.

Contact Amanda Miller to learn how Alpine Bank Wealth Management can assist you. Call her at 877-808-7878 or email her at [email protected]

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