Less than two weeks ago the House passed a $2 trillion coronavirus relief package, known as the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which was quickly signed by President Trump. A well-advertised component of the plan is the Treasury’s extension of the 2019 US tax return filing date from April 15, 2020 to July 15, 2020. Many states are now following that new July 15, 2020 deadline for their own individual tax filing deadlines. Perhaps less known are several provisions aimed at providing Americans unique tax and retirement savings consideration. These provisions include the following:

  1. The deadline to make 2019 IRA, Roth, HSA, Archer Medical Savings Account, and Coverdell Education Savings Account contributions has been extended from April 15, 2020 to July 15, 2020.
  2. The Required Minimum Distribution (“RMD”) for 2020 has been waived.
  3. Those who turned 70 1/2 last year and were required to take their first RMD by April 1, 2020 no longer need to make that RMD because it has been waived.
  4. IRA beneficiaries subject to the “5-year rule” also receive an additional year to withdraw funds due to the 2020 RMD waiver. Consequently, those who inherited an IRA from 2015 to 2020 are now subject to a “6-year rule”.
  5. The 10% early distribution penalty has been waived for up to $100,000 on any 2020 distributions from IRAs or company retirement plans held by “affected individuals” (this is broadly defined, and many will likely qualify). Other taxes on withdrawn distributions will be due but can be spread evenly over a three-year period.
  6. An individual’s ability to undo 2019 or 2020 RMDs already taken in 2020 depends on a number of factors. We expect that the IRS will issue better guidance on this. We suspect, but cannot verify, that an RMD might be undone if the following three all apply: (a) The RMD, by definition, is invalidated by the IRS as a “true” RMD; (b) the RMD is undone within 60 days of receipt of the funds; and (c) no IRAs were rolled over the prior year, possibly qualifying the RMD for re-characterization as a rollover transaction instead of a “true” RMD.
  7. The maximum amount on loans from company retirement plans increases to the lesser of $100,000 (reduced by other outstanding loans) or 100% of the account balance. This applies to loans taken within 180 days from the bill’s date of enactment. Any loan repayments normally due between the date of enactment and December 31, 2020 could be suspended for one year.

Please contact JP Marvel if you have any questions on how the Relief Bill might affect your financial situation.