By Shanna N. Yonke and Melissa S. Kampmann
April 6, 2020
In response to the COVID-19 pandemic, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) into law on March 27, 2020. Ruder Ware’s COVID-19 Focus Team provided a summary of the CARES Act in a previous blog post. In that post, they mentioned that the CARES Act suspends most required minimum distributions (“RMDs”) for 2020. This suspension applies to (i) 2020 RMDs, and (ii) 2019 RMDs that were required to be taken by April 1, 2020 by individuals who attained age 70 ½ in 2019.
What if you already took your RMD this year?
There are three ways that you might be able to fix your “mistake” of taking your RMD before the CARES Act suspended RMDs for 2020:
- 60-day rollover. You can roll over the distribution if you took the distribution within the last 60 days. There are some caveats to this option:
- The rollover must be in the same form as the distribution. In other words, if you took a cash distribution, the rollover must be made in cash. If you already used the cash to purchase an investment, you can’t rollover the investment instead of the cash.
- You can’t roll over the distribution if you already did a tax-free rollover within the 12 months prior to the distribution, except that there is no limit on the number of IRA-to-qualified plan rollovers (or qualified plan-to-IRA rollovers) you can do within a 12-month period.
- If you took the distribution from an inherited plan, the distribution can’t be rolled over unless you are the surviving spouse of the deceased owner.
- Coronavirus distributions. If you, your spouse, or a dependent were diagnosed with COVID-19, or if you experienced financial hardships due to coronavirus-related quarantines, furloughs, etc., then you can roll over a maximum of $100,000 of 2020 distributions within three years without regard to certain normal rollover restrictions.
- Other hardships. Even if more than 60 days have passed since you took the distribution, you may be able to roll over the distribution if you suffered certain other hardships, including if your home was severely damaged, you or a family member were seriously ill, or a family member died, among others.
What if you need money from your retirement account because of COVID-19?
While RMDs are suspended for 2020, the CARES Act allows you to take special distributions and loans if you, your spouse, or a dependent is diagnosed with COVID-19, or if you experience financial hardships due to coronavirus-related quarantines, furloughs, etc.:
- Coronavirus distributions. You may withdraw up to $100,000 from your retirement plan without incurring the 10% early withdrawal penalty, even if you are under the age of 59 ½. As long as you pay back the distributions within three years, you will be able to recover the federal and state income taxes that apply to the withdrawal.
- Coronavirus loans. You may borrow up to $100,000 from your retirement plan by September 23, 2020, and you won’t owe income taxes on the amount borrowed from the retirement plan if you pay off the loan within five years. If you already have a loan from your retirement plan, you may be able to delay loan payments due in 2020 for a year, although interest will continue to accrue on those deferred loan payments.
The retirement account provisions of the CARES Act serve as another reminder to review your estate plan as soon as possible, to ensure that it disposes of your retirement assets in the best manner for your family taking into account the SECURE Act changes that Ruder Ware’s Estate Planning Team summarized in this blog post. In particular, some of our clients may have current plans in place that leave their retirement assets to a trust known as a “conduit trust” following the client’s death. We used conduit trusts before the SECURE Act was enacted because the distributions of the retirement plan would be stretched over the expected lifetime of the trust beneficiary but still retain the creditor protection provided by the trust arrangement. However, under the SECURE Act, that same conduit trust may now result in distribution of all of the retirement plan assets to the beneficiary within 10 years of the death of the original account owner, which may not be a desired outcome. Depending on the circumstances, other planning techniques may better serve your objectives under the new rules. Please contact any attorney on Ruder Ware’s Estate Planning team if you would like to discuss your estate plan.
The content in the following blog posts is based upon the state of the law at the time of its original publication. As legal developments change quickly, the content in these blog posts may not remain accurate as laws change over time. None of the information contained in these publications is intended as legal advice or opinion relative to specific matters, facts, situations, or issues. You should not act upon the information in these blog posts without discussing your specific situation with legal counsel.
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