How CARES Act Relief Provisions Impact Investors
The recent passing of the $2.2 trillion 2020 Coronavirus Aid, Relief and Economic Security (CARES) Act, Bradford would like to highlight how the relief provisions may impact you in the following areas.
Required Minimum Distributions (RMDs) Waived for 2020
Required Minimum Distributions (RMDs) from defined contribution plans under 401(a), plans described in 403(a) and 403(b), eligible (governmental) 457(b) plans, and IRAs are waived for the calendar year 2020.
This includes the RMDs for participants that turned 70½ during 2019 and had not taken their distribution prior to January 1, 2020.
This change also provides that amounts that would have been RMDs, but for the CARES Act, that are (or were) distributed, are eligible rollover amounts that can be rolled over within 60 days. The CARES Act also excludes such amounts from the mandatory withholding requirements even though such amount could be rolled over.
IRA 10% Early Distribution Penalty for Pre-tax Plans Waived
Traditional hardship distributions are subject to an additional 10% tax on early withdrawals. The CARES Act waives the additional 10% for an individual who takes a distribution on or after January 1 and before December 31, 2020, and meets the following requirements:
- Is diagnosed with COVID-19;
- Has a spouse or dependent diagnosed with COVID-19;
- Experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of childcare due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19; OR
- Meets other factors as determined by the Treasury Secretary.
In addition, for participants who meet the requirements above:
- Up to $100,000 can be withdrawn, aggregated across all qualified plans, 403(b) plans, governmental 457(b) plans or IRAs of the individual.
- Tax on the income due to the distribution can be spread over a three-year period; and
- The amount distributed can be repaid into the plan (or IRA) over the next three years. Any repayments would not be subject to the plan contribution limitations.
Distributions made pursuant to Coronavirus Related Distribution rules do not have to satisfy other plan-related distribution requirements. Coronavirus Related Distributions will be treated as a rollover for the purpose of allowing repayments; however, they will not be subject to mandatory withholding on traditional distributions from plans or IRAs.
Coronavirus-related Distribution Provisions can be adopted immediately, even if the plan does not currently allow for hardship distributions, provided the plan is amended on or before the last day of the first plan year beginning on or after January 1, 2022 (or later if prescribed by the Treasury Secretary).
Extended 2019 Tax Deductions for Charitable Giving
If you take the standard deduction in 2020, you can claim an “above-the-line” deduction of up to $300 for cash donations to charity.
To claim a charitable deduction, you need to itemize the deduction.
If you itemize on Schedule A, the 60% of Annual Gross Income (AGI) limit for cash donations made in 2020 is lifted. This provision means you can deduct 100% of your cash gifts up to 100% of your AGI.
Plan Loan Relief from Employer-sponsored Plans
Under the CARES Act, employers with single-employer defined benefit plans, including cash balance plans, will be given more time to meet their funding obligations by delaying the date for contributions due in 2020 until January 1, 2021.
The delay applies both to final contributions due in 2020 for 2019 plan years as well as quarterly contributions due during the year. Delayed contributions will be subject to interest for the accruing period at the effective rate of interest for the plan, for the plan year which includes the payment date.
Additionally, plan sponsors can treat the plan’s adjusted funding target attainment percentage for the last plan year ending before January 1, 2020, as the target for plan years which includes 2020.
How Can We Help?
If you have any questions or would like more information, please contact the Bradford team at: