The CARES Act: How does this affect you and your IRA?
This summary is not individual tax advice. Please seek professional tax advice before affecting transactions.
No. 1 - Distributions from IRAs and qualified plans up to $100,000
- Must be impacted by coronavirus due to own diagnosis, diagnosis of spouse or dependent, experience adverse financial consequences (quarantine, laid off, etc), unable to work due to lack of childcare, own a business that has been adversely affected or meet another the reason the IRS approves of;
- 10% pre 59 ½ penalty is waived;
- Qualified plans do not have to comply with 20% mandatory withholding;
- Eligible to be repaid to plan or IRA within 3 years;
- Income may be spread evenly over 2020, 2021 and 2022 if owner desires.
No. 2 – Required Minimum Distributions (RMDs) are waived for 2020.
- Broadly applies to all IRAs and qualified retirement plans such as 401(k), 403(b) and 457(b);
- Beneficiary IRAs are covered under this relief;
- RMDs that have already been taken for 2020 may be returned if a rollover is made within 60 days of the distribution. A further exception applies (no 60 day limit) to those who have been impacted by the coronavirus as shown above. Beneficiary IRAs are NOT eligible for this relief.
No. 3 – 2020 is ignored for purposes of the 5-year rule
- Non-designated beneficiaries of qualified plans and IRAs are allowed to disregard a 2020 distribution. If 2020 was the 3rd year, for example, 2021 will now be counted as the 3rd year and the countdown toward 5 years will continue from there.
No. 4 – A $300 “above the line” deduction for Qualified Charitable Contributions is allowed for 2020 (and maybe every year forward due to bill wording.)
- Contribution must be made to a qualifying charity;
- Contribution cannot be made to a donor-advised fund or a “supporting organization” under 509(a)(3); and
- Contribution must be made in cash.
No. 5 – Though not related to IRAs or qualified plans, Health Savings Accounts (HSAs), Archer Medical Savings Accounts (MSAs) and Healthcare Flexible Spending Accounts (FSAs) receive relief
- Over the counter medications are now qualified medical expenses as are certain feminine hygiene products.
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