Finance

Has COVID-19 Affected Has COVID-19 Affected

By Vance Morra

As COVID-19 spread, investor speculation rose, causing a sudden drop in the global stock markets in late March. Americans watched their retirement accounts drastically decrease in value and are now faced with a potential prolonged weakness in the market, which could mean less income and expected returns down the road.

The CARES Act (Coronavirus Aid, Relief, and Economic Security Act), which became effective March 27, 2020, provides some relief for those experiencing financial hardship and need access to money.

In either case, it is always important to speak with a financial professional to obtain the guidance relative to your personal situation. Below are some guidelines from the IRS to consider.

Required Minimum Distributions in 2020

If you typically take your RMD later in the year and don’t need the funds, suspending your Required Minimum Distribution (RMD) is a great option. It reduces your taxable income so you are not paying taxes on money you do not need.

Your Retirement Account? Your Retirement Account?

Distributions can be skipped in 2020 from a defined-contribution retirement plan, which include 401(k), 403(b), as well as IRA accounts as part of the CARES Act. You are not required to have been affected by the coronavirus to waive your RMD for 2020.

This legislation is also applicable for beneficiaries with inherited IRAs and accounts inherited in a retirement plan and are not required in 2020. If you were required to take a distribution within five years following the year of the account holder’s death, 2020 does not count toward the five years. So, you would essentially have six years to distribute the inherited IRA.

Note - this waiver does not apply to defined-benefit plans.

Qualifications for Relief and ability to withdraw up to $100,000 through 2020

If you are experiencing financial hardship, you may have easier access to funds in your retirement account. Hopefully you won’t need to access those funds, but if you do, here are the rules.

Qualified individuals affected by COVID-19 may be able to withdraw up to $100,000 from their eligible retirement plans, including IRAs, between Jan. 1 and Dec. 30, 2020.

The law defines a qualifying person as someone who: • Has tested positive and been diagnosed with COVID-19 • Has a dependent or spouse who has tested positive and been diagnosed with COVID-19 • Experiences financial hardship due to them, their spouse or a member of their household: • Being quarantined, furloughed or laid off or having reduced work hours • Being unable to work due to lack of childcare • Closing or reducing hours of a business they own or operate • Having pay or self-employment income reduced • Having a job offer rescinded or start date for a job delayed Tax Implications

When you are under age 59.5, you generally have to pay a 10% additional tax penalty for any withdrawals from a defined contribution plan. Because of the CARES Act, these coronavirusrelated distributions are not subject to the 10% additional tax penalty that would normally be required, but they are still subject to regular federal and state income taxes. If taxpayers choose to take the coronavirus-related distributions in 2020, they have a few options: they can pay their full tax liability for their 2020 tax distribution, they can pay the full amount back to the retirement account within three years without penalty or tax implications, or they can spread the tax burden over a three-year period. For example, if you receive a $15,000 coronavirus-related distribution in 2020, you would report $5,000 in income on your federal income tax return for each of 2020, 2021, and 2022. You also have the option of including the entire distribution in your income for the year of the distribution.

In conclusion, following some of these tips on how to minimize the impact on your retirement accounts may help carry you through this uncertain time and provide much needed income. Before you decide to postpone retirement or dip into a retirement fund, it is important to speak with a financial professional to obtain guidance, relative to your personal situation. Next, determine if you are eligible for penalty-free withdrawals from your retirement account, and finally, make sure your retirement accounts are well positioned to recover when the markets improve.

For more information, visit the IRS website @ irs.gov.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.