CARES Act Tax and Retirement Plan Updates

Congress’s latest coronavirus relief package, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, is the largest economic relief bill in U.S. history and will allocate $2.2 trillion in support to individuals and businesses affected by the pandemic and economic downturn.

Here are some of the highlights as they pertain to individuals, their taxes and retirement plans…

1. Extended deadline for 2019 IRA contributions

The Treasury has extended the tax return filing deadline to July 15, 2020, from April 15, 2020, the date for making 2019 IRA and Roth IRA contributions is also extended to the same date.

Does this also allow more time to contribute to IRA's for 2019? According to the IRS, the answer is, "Yes. Contributions can be made to your IRA, for a particular year, at any time during the year or by the due date for filing your return for that year. Because the due date for filing Federal income tax returns has been postponed to July 15, the deadline for making contributions to your IRA for 2019 is also extended to July 15, 2020."

2. RMDs Waived for 2020           

This could be a significant benefit because 2020 RMDs would generally be based on the substantially higher account values at December 31, 2019. If not for this relief, IRA owners would be forced to withdraw and pay tax on a much higher percentage of their IRA balance. Eliminating the RMD for 2020 can help clients reduce their 2020 tax bill. However, this won’t help those who need the funds and must take withdrawals anyway to cover their living expenses.

3. Coronavirus related distributions from retirement accounts

a. Waiver of the 10% early distribution penalty on up to $100,000 of 2020 distributions from IRAs and company plans for “affected individuals”.

b. Extension of the 60-day rollover deadline to three years for coronavirus-related distributions

c. Three-year income spread. Generally distributions from retirement accounts are included as income in the year of the distribution. The CARES Act allows the income to be spread out over three tax years even though it was all received in one year.

4. Increase in 401-k loan amounts

​Previously 401k loans were limited to the lesser of $50,000 or 50% of the participants balance. The CARES Act increases the amount to $100,000 for qualified individuals for loans made during the 180 days following March 27th, 2020.