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Lane Keeter, CPA

Partner: Tax Consulting, Estate Planning, and Heber Springs Managing Partner

CARES Act Retirement Plan & IRA Changes You Should Know About

The CARES Act, passed in late March to provide relief from financial strains being caused by the COVID-19 pandemic, contained several important provisions affecting IRAs and some qualified employer retirement plans. I wrote about a few of these in brief a few months back, although at the time details about them were scant.

New guidance has recently been issued that provides important information about these provisions that you may need to know if you are considering taking advantage of them.

First of all, as previously written, if you are required to take what are known as "required minimum distributions" (RMD) from your IRA or other retirement plan, for 2020 only, you now do not have to take your RMD. It had been widely believed that if you had already taken your RMD for 2020, then you were just out of luck, because there was nothing that suggested you would be able to undo that even with the new law in place.

Well, in rides IRS to the rescue (that just sounds weird to say, but I digress).

The IRS recently stated that anyone who already took an RMD in 2020 now has the opportunity to roll those funds back into a retirement account following the CARES Act RMD waiver for 2020. The 60-day rollover period for any RMDs already taken this year has been extended to August 31, 2020, to give you time to take advantage of this opportunity. In addition, they said that this repayment is not subject to the one rollover per 12-month period limitation and the restriction on rollovers for inherited IRAs.

Another CARES Act change relates to so called "early distributions", i.e., those IRA or retirement plan distributions take before age 59½ that would normally be subject to the 10% early distribution excise tax. The CARES Act allows you to take an early distribution due to certain covid19 related issues without penalty up to a total distribution of $100,000 for distributions occurring from January 1, 2020 through December 31, 2020. 

Further, the COVID-19 related distribution is taxed evenly over a three-year period, and the participant has until the end of the three years to repay the amount to a qualified plan or IRA to avoid income taxes on the amount so repaid.

A recent IRS Notice has expanded the definition of a "qualified individual" who can benefit from these relief provisions. To its credit, the IRS graciously allows you to take into account additional factors such as reductions in pay, rescissions of job offers and delayed start dates affecting you, as well as adverse financial consequences arising from the impact of COVID-19 on a spouse or household member.

Specifically, a qualified individual is anyone who meets either one of these two tests:

1. The person (or his or her spouse or dependent) is diagnosed, with the virus SARS-CoV-2 or the coronavirus disease 2019 (collectively, "COVID-19") by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetic Act); or

2. The person has adverse financial consequences resulting from any member of the household experiencing one of the following:

  • Being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19
  • Being unable to work due to lack of childcare due to COVID-19
  • Closing or reducing hours of a business that they own or operate due to COVID-19
  • Having pay or self-employment income reduced due to COVID-19
  • Having a job offer rescinded or start date for a job delayed due to COVID-19

The IRS went on to say that plan participants may claim the tax benefits of coronavirus-related distribution rules even if plan provisions aren't changed by the sponsoring organization, and that plan administrators can rely on an individual's certification that the he or she is a qualified individual for these purposes.

Additionally, some employer sponsored plans have loan provisions that allow participants to borrow against their account balances. The CARES Act relaxes existing rules for such loans by allowing a plan to suspend loan repayments that are due from March 27, 2020 through December 31, 2020, while effectively doubling the dollar limit on loans from $50,000 to $100,000.

The above is welcome news in response to the financial upheaval many are experiencing because of the pandemic. More information about this tax relief and other information relating to the tax aspects of COVID-19 are available on the IRS Coronavirus Tax Relief pages of

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