CONTINUING EDUCATION FOR TAX & FINANCIAL PROFESSIONALS

RETIREMENT CHANGES IN THE CARES ACT

The Coronavirus has infected our personal and professional lives in many way. After at a lot of talk, Congress did something! On Mar. 27, 2020, President Trump signed into law the Coronavirus Aid, Relief, and Economic Security Act, (CARES Act, HR 748), a $2.2 trillion stimulus package to mitigate the impact of the Coronavirus pandemic.

CARES includes retirement plan changes that are important to communicate to our clients.Temporary Waiver of RMDs

Under §401(a)(9), a retirement plan or IRA owner must take a required minimum distribution (RMD) annually once the owner reaches age 72. However, for calendar year 2020, CARES waives the required minimum distribution rules for certain defined contribution plans. The wavier applies to all required minimum distributions that would have been required in 2020. This includes the first RMD, which individuals may have delayed from 2019 until April 1, 2020.

Example. John, who is 74 years of age, has an IRA that had a balance of $1,000,000 at Dec. 31, 2019. Using prior law, John’s RMD for 2020 is $42,017.  Currently, his IRA is worth $500,000 and he doesn’t want to sell stock inside of the IRA account to take out an “inflated” RMD amount. CARES allows John to waive his 2020 RMD.

Application. Pursuant to CARES, RMD rules do not apply in 2020 to:

  1. defined contribution plans (§403(a) or §403(b)),
  2. defined contribution plans that are eligible deferred compensation plans under 457(b) and maintained by an employer, or
  3. individual retirement plans (§401(a)(9)(I)(i)).

In addition, the RMD rules do not apply to any distribution required to be made in 2020 because of:

  1. a required beginning date occurring in 2020, and
  2. such distribution not having been made before 2020.

Example. Jill turned 70 ½ in January 2019.  She chose to take her first RMD on April 1, 2020.  Because of CARES, Jill is not required to take an RMD, even this one, in 2020.

Tax practitioner planning. 80% of account owners drew more than their RMD prior to the pandemic. Clients may need to take more money from their pension accounts, not less.

Remind your clients.  They may take a distribution from their IRA or pension plan in 2020. The new law simply does not require them to take a distribution in 2020.Waiver of 10% Penalty for Coronavirus-related Distribution

Consistent with previous disaster-related relief provisions, CARES waives the §72(t) 10% early withdrawal penalty for distributions up to $100,000 from qualified retirement accounts for coronavirus-related purposes made on or after Jan. 1, 2020 and before Dec. 31, 2020. Income attributable to such distributions is subject to tax over three years.

Repayments of Coronavirus-related Distributions. A coronavirus-related distribution may, at any time during the 3-year period beginning on the day after the date such coronavirus-related distribution was received, be repaid in one or more contributions to an eligible retirement plan in which the qualified individual is a beneficiary. Such repayments will be treated as eligible trustee to trustee rollovers made within 60 days of distribution.

Coronavirus-related distribution. A coronavirus-related distribution is one made to an individual:

  1. who is diagnosed with COVID-19,
  2. whose spouse or dependent is diagnosed with COVID-19, or
  3. who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19, or other factors as determined by the Treasury

Qualified Individual. A qualified individual is any individual:

  1. diagnosed with the virus SARS-CoV-2 or with coronavirus COVID-19 by a test approved by the CDC,
  2. whose spouse or §151 defined dependent is similarly diagnosed, or
  3. experiencing adverse financial consequences as a result of being:
    • quarantined,
    • furloughed or laid off or having work hours reduced due to such virus or disease, or
    • unable to work due to lack of child care due to such virus or disease, the closing or reduction of hours in a business owned or operated by the individual due to such virus or disease.

Note. The retirement plan administrator can rely on an employee’s certification that the employee satisfies the conditions of item (3) above.Pension Plan Loans

The §4975(d) limit on retirement plan loans from a qualified employer plan made to qualified individuals during the 180-day period beginning on March 27, 2020 is increased from $50,000 to $100,000 000 (or, if less, the individual’s nonforfeitable benefit).  If the due date of a loan occurs between March 27, 2020 and Dec. 31, 2020, it will be delayed for one year.


Webcast on the Coronavirus Tax Update

A 2 hour webcast titled The Coronavirus Tax Update will start showing Monday, April 6, 2020.The webcast will include:

  • The filing tax delay – news and update
  • The stimulus rebate payments – news from the IRS and an update on client questions
  • Other individual changes- charity, medical and student loans
  • Coronavirus “disaster” loss reimbursements- §139
  • Retirement plan changes
  • Paycheck Protection Program loans
  • Sick leave and Family leave details
  • Employer Retention Payroll Tax Credit rules
  • Employer payroll Tax Delay procedures
  • Other business changes – NOLs,461(l), §163(j)- and more
  • Two client letters are included to help you communicate with yoru clients

Learning objectives

  • Be able to answer questions from slients on tthe stimulus rebate
  • Understand the tax provisions of the CARES Act applying to individual clients.
  • Understand the tax provisions of the CARES Act applying to business clients.
  • Be able to provide clients with answers to their “how, when and how much questions” on the new SBA

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