Usual restrictions loosened

Written by Attorney Timothy J. Bupp, CELA; CGA Estate Practice Chairman

Among the many provisions of the $2.2 trillion dollar CARES Act passed by Congress in March are several directed at retirement plans.  These provisions loosen the usual restrictions on qualified accounts for those suffering economically from the current emergency. 

         — Emergency Withdrawals.  Early withdrawals from an IRA or  qualified plan account usually trigger a ten- percent excise  penalty.  However, the CARES Act now allows Covid-related distributions from a qualified account of up to $100,000 without the penalty, so long as the participant repays the distribution back into the account within three years of the withdrawal.  The participant can also elect to keep the withdrawal and pay the applicable tax on it within three years.  The participant must also aver that the withdrawal was necessitated by diagnosis, furlough, or layoff related to Covid-19.  Mandatory tax withholding is required only at 10%, as compared to the usual 20% level. 

         — Loans.  CARES increases the amount available to the participant as a loan from $50,000 or 50% of the account,  to $100,000 or the entire amount of the account, whichever is less.  Loans incur interest, however the first year’s payment is deferred and the statutory  five-year repayment period is extended by the deferral year.  These loan provisions must be put into place by the plan owner, so not all plans may allow such provisions. 

         — RMDs suspended.    During the emergency, plans are allowed to waive Required Minimum Distributions from qualified plans for participants.  This includes distributions from inherited IRAs, and or owners over 70 ½ with traditional IRAs.  Those who have already made RMD withdrawals have the option of returning the RMD, or investing it into another qualified account, such as an IRA or Roth account.

         — Contribution Deadline Extended.  Just as the filing date for 2019 taxes has been extended to July 1, 2020, so the deadline for 2019 contributions into an IRA are similarly extended to the same date. 

         — Charitable Deduction.   As an aside, the CARES Act also approved an above-the-line deduction for a charitable donation of up to $300 beginning tax year 2020. With the loss of itemization for most taxpayers, this small give-back will reward a small amount of charitable giving during this time of need.   

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