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Retirement Account Rules Relaxed


Some retirement account rules have been relaxed as a result of both the Setting Every Community Up for Retirement Enhancement (SECURE) Act, signed into law in December 2019 and the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Washington’s massive stimulus effort to provide relief for families, individuals, small businesses, and major sectors of our economy impacted by the coronavirus outbreak.

Key Takeaways from CARES Act:

• The federal income tax deadline for filing 2019 tax returns has changed from April 15 to July 15, 2020, which means that the deadline for making 2019 IRA (and also HSA contributions) has also been moved to July 15, 2020.

• Retirees are allowed to forego taking their Required Minimum Distributions (RMDs) from some retirement accounts for 2020.

• The 10% early withdrawal penalty will be waived on aggregate distributions of up to $100,000 from certain workplace retirement plans and individual retirement accounts (IRAs) for COVID-19-related purposes. The individual can elect to pay the federal income tax on the distribution over 3 years or has the option to repay the distribution within a 3-year period to an eligible retirement plan.

For individuals, the CARES Act makes retirement funds available for emergency spending needs and delays mandatory distributions. The Internal Revenue Service (IRS) has moved the deadline for filing and payment of 2019 federal income taxes from April 15 to July 15, 2020. The IRS confirmed that July 15, 2020, will also be the deadline to make 2019 contributions to IRAs and health savings accounts (HSAs). Deadlines associated with contributions to workplace savings plans are not affected.

The CARES Act offers some help to those with retirement accounts. Required minimum distributions (RMDs) for 2020 are suspended for certain defined contribution plans and IRAs to help retirement accounts try to recover from stock market losses. This includes the first RMD, which individuals may have delayed from 2019 until April 1, 2020. Some individuals may have already taken their RMD for 2020. As a result of the CARES Act, if they qualify, these individuals may request a 60-day rollover to re-contribute the amount back into their retirement accounts.

Affected, eligible participants in workplace retirement plans and IRA owners can take an aggregate distribution in 2020 of up to $100,000 from all retirement accounts without incurring the usual 10% early withdrawal penalty. The affected participant or IRA owner (including a spouse or dependent) would need to either be diagnosed with SARS-COV-2 or COVID-19 or experiencing adverse financial consequences as a result of an event, including but not limited to quarantine, furlough, lay-offs, reduced work hours, no available childcare, business closing or reduced business hours (self-employed), or other factors determined by the Secretary of the Treasury.

Importantly, the income tax on the distributions may be spread evenly over 3 years. Or, the distribution may be repaid to an eligible retirement plan within a 3-year period. Loan repayments for affected participants in workplace retirement plans may be delayed for one year. These changes will be in effect through 2020. Note that your plan may offer other withdrawal options.

In addition to the CARES Act, the Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law in December 2019, the SECURE Act included provisions that made significant impacts to some retirement accounts. The following are two, but not all, of the key changes of the SECURE Act.

• Removes the prohibition on contributions to traditional IRAs by individuals who have reached the age of 70 with earned income.

• Increased the age for required minimum distribution (RMD) for Individual Retirement Account (IRA) from 70 to 72 for individuals turning 70 in 2020 or later.

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