The stimulus bill known as the CARES (Coronavirus Aid, Relief, and Economic Security) Act was signed into law on March 27, 2020. The act is designed to help mitigate the impact that coronavirus (COVID-19) is having on the U.S. economy and includes temporary relief specific to certain types of transactions in IRAs and retirement plans.
The waiver also affects 2019 RMDs for individuals who attained age 70 ½ in 2019 and deferred their 2019 RMD payment until April 1, 2020. If the individual did not distribute their RMD in 2019, then the waiver applies.
The distribution must be taken on or after January 1, 2020, and before December 31, 2020. The maximum amount for an individual across all their plans and IRAs is $100,000.
The Act defines an eligible individual as someone:
Some of the provisions will be subject to future guidance. We will provide more information as it becomes available.
Frequently Asked Questions
The following is meant to highlight some of the key changes that impact individual retirement accounts (IRAs) and employer-sponsored retirement plans.
Required Minimum Distributions (RMDs) Waiver
Q: My client has automatic payments established for the 2020 RMD. Will the RMD be automatically deferred?
A: No. Investors and/or advisors need to direct us to modify or defer an automatic withdrawal plan. We can take the request verbally or in writing.
Q: My client already took a 2020 RMD payment from my IRA. Can it be returned?
A: If it’s within the 60-day indirect rollover period, a distribution taken earlier this year to meet a 2020 RMD requirement is eligible to roll over back into the IRA. Investors should complete the Indirect Rollover Request. Current law only allows one rollover per year for indirect rollovers from IRA to IRA. The IRS extended the 60-day rollover period for distributions taken between February 1, 2020, and May 15, 2020. Investors now have until July 15, 2020, to rollover a distribution taken during this period.
Non-spouse beneficiaries are not eligible to roll over a distribution back into an inherited IRA.
Q: My client is a beneficiary taking distributions on the 5-year rule, how does the 2020 RMD waiver apply?
A: The 5-year period is determined without regard to calendar year 2020.
Example: A beneficiary of an individual who died in 2018 is following the 5-year rule. The 5-year period ends in 2024 instead of 2023.
Note: These changes do not apply to beneficiaries who will be taking distributions based on the 10-year rule.
Coronavirus-related distributions (CRDs)
Q: My client is impacted by COVID-19. Are they eligible to take a coronavirus-related distribution from their IRA?
A: The Act defines an eligible individual as someone:
Investors can take a distribution from an IRA at any time.
Q: How does my client request a CRD from their IRA?
A: To request a distribution, we can take the request verbally or by having your client complete and submit the “IRA Single Distribution Request.”
The IRS may provide additional guidance regarding how to report these distributions on their taxes.
Q: If my client takes a CRD from a SIMPLE IRA during the first two years, is the 25% early distribution penalty waived?
A: Yes, CRDs are not subject to an early distribution penalty.
Q: Do retirement plans have to permit CRDs or enhanced loans?
A: No, an employer can decide whether to offer CRDs and/or enhanced loans.
Q: Can my client take a CRD from their employer-sponsored retirement plan, such as a 401(k), 403(b) or governmental 457(b)?
A: Investors must check with their employer that a CRD is a distribution event offered by the plan. If they are otherwise eligible for a distribution, they can request a distribution under that event and still take advantage of the:
Q: If my client later wants to repay a CRD back into their IRA or retirement plan, how much time do they have to repay it?
A: Investors have three years beginning on the day after the date the distribution is made. They can repay the amount distributed or a lesser amount to an IRA or qualified plan that accepts rollovers. The repayment is treated as a rollover. The taxpayer will be able to recover tax previously paid in connection with CRDs that are rolled back into an IRA or plan. We expect the IRS to publish guidance on how to reverse the tax consequences of CRDs that are later rolled back into an IRA or plan.
Q: Does the employer have to verify whether a participant is eligible for a CRD or an enhanced loan?
A: The CARES Act allows plan administrators to rely on an employee’s certification that the employee satisfies the CRD eligible conditions.
Q: Can a SIMPLE IRA plan stop, defer or delay making employer contributions?
A: The IRS and Department of Labor (DOL) haven't provided any relief for mid-year changes to SIMPLE IRA employer contribution rules.
Standard SIMPLE IRA contribution rules:
Example: If the plan has eligible participants not making salary deferral contributions, and the employer elected the matching contribution option, there isn't an employer contribution due.
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the mutual fund prospectuses and summary prospectuses, which can be obtained from a financial professional, and should be read carefully before investing. Similar information about collective investment trusts can be obtained from Capital Group or participants’ plan provider or employer.
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This material does not constitute legal or tax advice. Investors should consult with their legal or tax advisors.