2020 IRA Considerations after the CARES Act

With the Coronavirus, Aid, Relief, and Economic Security (CARES) Act signed into law on March 27, 2020, there have been impacts affecting distributions from retirement plans and IRAs in several significant ways.  

The following details can help you decide if any action is needed with IRA accounts that you own.

Required minimum distributions are waived for calendar year 2020

This waiver of 2020 required minimum distributions (RMD) applies to qualified retirement plans and all IRAs, including both Traditional and Roth inherited IRAs. Forgoing your 2020 RMD means you do not have to further reduce your account balance this year beyond the impact caused by the decline in the securities markets. 

Individuals originally set up to receive their 2020 RMD over several periodic payments (monthly, quarterly, or semi-annually) may want to consider discontinuing further IRA distributions during 2020. You should contact your financial advisor about discontinuing any remaining IRA distributions. Of course, you are still permitted to take whatever account distributions you need or desire during 2020.

For individuals who have already taken their RMD for 2020, the CARES Act does not explicitly provide for repayment of the 2020 RMD back into the IRA or retirement plan account. It may be possible under the existing 60-day rollover rule for a prior 2020 distribution, including a 2019 RMD distribution taken in 2020, to be rolled over into an IRA account. However, the 60-day rollover rule may only be used once during any given 12-month period and is not applicable to inherited IRA distributions. In a partial relaxation of the 60-day limit, the IRS has indicated that an RMD received between February 1 and May 15 of this year may be rolled back into an IRA account by July 15, 2020. Any rollover under the 60-day rule should be made only after consultation with your personal tax preparer or advisor.

Extended deadline for IRA account contributions

You are undoubtedly aware that the deadline for filing 2019 federal income tax returns has been extended to July 15, 2020. This extension has the effect of also extending the deadline for making IRA contributions, which can be treated as 2019 contributions, to July 15, 2020. IRA contribution tax documentation (either Form 5498 or amended Form 5498, as applicable) will be produced and mailed after the August 31, 2020 cutoff.

Relief for impacted individuals for retirement distributions

The CARES Act waives the 10 percent early withdrawal penalty on distributions taken before a plan participant or IRA owner attains age 59½ for individuals impacted by the coronavirus. A plan participant or IRA owner impacted by the coronavirus is defined to be individuals diagnosed with the COVID-19 virus by a test approved by the Center for Disease Control; individuals whose spouse or dependent is diagnosed; or individuals who experience “adverse financial consequences” on account of being quarantined, being furloughed, laid off or having work hours reduced, being unable to work due to lack of childcare, or closing or reducing hours of a business owned or operated by the individual. Such impacted individuals can withdraw up to $100,000 in 2020 from a plan/IRA without incurring the 10 percent early withdrawal penalty. This provision is retroactive to January 1^st and therefore applies to any 2020 distributions. Any such withdrawals will still be subject to income tax; however, an election can be made to spread the income equally over a three-year period beginning with the 2020 tax year. Additionally, such withdrawals can be repaid back into the plan or IRA within three years of receipt. Any later repayment will cause the need to amend prior year tax returns for the years in which the distribution income was reported.

Consideration should be given to Roth IRA conversions

The coronavirus pandemic has adversely impacted U.S. and global securities markets in the short term. Lower IRA account values, combined with the lower income tax rates implemented under the Tax Cuts and Jobs Act of 2017, may present an opportunity to consider converting a Traditional IRA account to a Roth IRA account. As markets recover, Roth IRAs may be set up to experience tax-free growth and will avoid future income tax when withdrawals are later taken.

We recommend you consult your personal tax or financial advisor to determine what action, if any, makes sense for your unique situation.

Should you have questions specific to your INTRUST accounts, we welcome the opportunity to assist you. Our customer solution center is available by phone at 800-999-4048, and representatives are available Monday - Friday, 7am - 8pm and Saturday 8am - 6pm.