On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act was signed into law. The bill includes provisions intended to provide relief and assistance caused by the spread of the COVID-19 virus. Included in the bill were provisions directly relating to retirement accounts.
Summary of retirement account provisions:
Folks who were otherwise supposed to take a required minimum distribution for 2020 are no longer required to do so.
The formula for calculating an RMD for 2020 includes the fair market value of the account as of December 31, 2019. Due to the recent market downturn, the RMD would represent a disproportionate percentage of the current market value of the account.
To address this problem, the CARES Act waives RMDs for 2020. As a result of this waiver, there are no 2020 RMD for the following accounts:
As a reminder, ROTH IRAs do not have RMDs.
The CARES Act relaxes the income tax rules that apply to coronavirus-related distributions. A coronavirus-related distribution is defined as one that is made on or after January 1, 2020, and before December 31, 2020, to an individual:
Coronavirus-related distributions are capped at $100,000 per taxpayer.
Distributions from a retirement account are subject to a 10% early distribution penalty or additional tax if they occur before the retirement account owner reaches age 59 ½ unless an exception applies. Coronavirus-related distributions have been added to the list of exceptions to the 10% early distribution penalty.
For 401(k) plans that permit loans like Rocket Dollar’s Solo 401(k), the account owner may borrow the lesser of 50% of the account balance or $50,000 whichever is less. The CARES Act increases the $50,000 limit to $100,000 for loans made after March 27, 2020, and for 180 days. To qualify, a person who would need to meet the requirements for a coronavirus-related distribution.
For participants who already have an outstanding loan on the plan, and whose vested account balance is 10,000 or less, a special calculation will need to be done to determine the loan amount for which such individuals are eligible.
In the case that you have to take a COVID-19 related distribution, you will be able to spread out the income taxes owed on the distribution over three years from the date you took the distribution. If you are able, you can also put the money back into the account before the three years are up, even though you usually are not able to contribute that large of an amount.
If you have any further questions surrounding the Secure Act and how it relates to your retirement accounts, please do not hesitate to reach out to our team or visit our knowledge base article on the topic.
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