Changes in Required Minimum IRA Distributions under the CARES Act
On March 27, 2020, after unanimous Senate approval, the House approved the Corona virus Aid, Relief and Economic Security (CARES) Act, a $2 trillion stimulus bill designed to help offset the economic impact of the corona virus on the U.S. economy and taxpayers. The President promptly signed the bill into law. While the law contains 880 pages of provisions to assist various aspects of the economy, for our clients, here are some important provisions to know:
- Option to Waive 2020 RMD. Required minimum distributions are suspended for the year 2020 for a number of retirement accounts, including IRAs. Account holders can opt not to receive RMD from their retirement accounts for 2020, lowering 2020 taxable income and leaving funds in the account for further growth. For those who have already received 2020 RMD distributions, those payments can be returned to the account.
- Direct Payments. Individuals with AGI up to $75,000, and married couples with AGI up to $150,000 (in 2019, or 2018 if no 2019 return has been filed), will receive a one-time payment of $1200 or $2400, respectively. Taxpayers will receive an additional $500 for qualifying children. Individuals over the AGI limit will see a reduction in stimulus payment of $50 for every $1000 in AGI over the threshold.
- No Withdrawal Penalty for IRA distributions. The 10% early withdrawal penalty for distributions made to retirement account holders under the age of 59 ½ is waived for “corononavirus related distributions,” with option to contribute the withdrawn funds back into the retirement account in future years, and spread the taxable income of the distribution over three years.
The law contains a multitude of additional provisions related to unemployment, small business loans and tax credits, delay in payment of federal payroll tax, and provides hundreds of billions of dollars in lending to states, municipalities and businesses.
We will continue to review the provisions of this emergency relief bill and summarize more thoroughly in our next quarterly newsletter. In the meantime, if you have any questions about how this law may affect you and your personal financial decisions, please do not hesitate to reach out to us.