On March 27, 2020, Congress passed, and the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). This fiscal response to the effects of the COVID-19 pandemic is designed to aid individuals, businesses, and health care providers, as well as states and municipalities.
The CARES Act is the largest emergency stimulus bill in history, more than doubling the act passed during the 2008/09 financial crisis. Its various components provide an estimated $2 trillion in stimulus and economic relief. To put this in perspective, $2 trillion is roughly 10% of the GDP of the United States in a typical year.
As noted above, the scope of the CARES Act is wide-ranging. Provisions for individuals include:
Below, we discuss the CARES Act as it relates to (1) the ability to waive this year’s required minimum distributions and (2) potential options for returning unwanted RMDs that have already been withdrawn for 2020.
Your options depend on your account type and IRS guidelines.
Your own IRA: In normal circumstances, RMD withdrawals are not eligible for rollover into a retirement account. Because the new law waives 2020 RMDs, however, the IRS will likely deem these distributions eligible for rollover. To roll the funds back into an IRA, one would still need to satisfy BOTH of the following tests:
Additionally, individuals personally affected by the current pandemic may be able to take advantage of the “Coronavirus-Related Distribution.” This separate provision within the CARES Act allows individuals to repay, over a three-year period, 2020 retirement plan distributions up to $100,000, regardless of when in the year they received the distributions.
Your Employer Retirement Plan: If the distribution took place within the last 60 days, you could roll the funds into an IRA in your name. Per IRS rules, the one-rollover-per-year limit does not apply for plan-to-IRA rollovers.
Inherited IRAs and Inherited Roth IRAs:
Yes, for IRA owners over the age of 70 ½. Even though RMDs are suspended for 2020, QCDs can still be made. Of course, the distributions would not offset any RMD amounts in 2020 but would allow an individual to make charitable contributions using pre-tax dollars.
We expect that the IRS will release additional guidance in the coming weeks and months to address specific questions and scenarios that have been raised by the new law. Please consider the above our initial understanding of the new law and not personalized tax advice. Please give us a call if you would like to discuss how it will impact you. We look forward to the opportunity to serve you.
This information is believed to be accurate but should not be used as specific investment or tax advice. You should always consult your tax professional or other advisors before acting on the ideas presented here.