By Eric McGraw, CPA, Senior Tax Manager
The CARES Act provided relief for penalties assessed on early withdrawals from retirement accounts. Eligible plan participants were able take an early distribution of up to $100,000 without incurring the 10% penalty normally imposed on early distributions. In addition, the 20% federal income tax withholding requirement was also waived.
On June 19, 2020 the IRS published Notice 2020-50 to expand the eligibility criteria. Adverse financial consequences suffered by a taxpayer’s spouse, and vice-versa, are now considered. In addition, the rescission of job offers, or the delay of a job start date, are now considered adverse financial consequences.
From the IRS website “As expanded under Notice 2020-50, a qualified individual is anyone who –
- is diagnosed, or whose spouse or dependent is diagnosed, with the virus SARS-CoV-2 or the coronavirus disease 2019 (collectively, “COVID-19”) by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetic Act); or
- experiences adverse financial consequences as a result of the individual, the individual’s spouse, or a member of the individual’s household (that is, someone who shares the individual’s principal residence):
- being quarantined, being furloughed or laid off, or having work hours reduced due to COVID-19;
- being unable to work due to lack of childcare due to COVID-19;
- closing or reducing hours of a business that they own or operate due to COVID-19;
- having pay or self-employment income reduced due to COVID-19; or
- having a job offer rescinded or start date for a job delayed due to COVID-19.”
Required Minimum Distributions
The CARES Act allowed taxpayers to forgo Required Minimum Distributions (RMD) from their retirement accounts for the 2020 tax year. For taxpayers who had already taken their RMD before the Act passed, the CARES Act allowed them to roll money back into their accounts to negate the distribution. Unfortunately, this relief was only available to original account holders and spousal-beneficiaries who had taken an RMD after January 31, 2020. Additionally, the roll back had to take place within 60 days from the date of the distribution.
On June 23, 2020, the IRS published Notice 2020-51, which expanded the relief on RMDs provided by the CARES Act in three ways.
- Non-spousal beneficiaries are now eligible to roll back their RMD.
- Taxpayers who took their RMD in January are now eligible to roll back their RMD.
- The 60-day window taxpayers have to perform the roll back has been changed to a single deadline of August 31, 2020.
Please note that this article does not constitute financial advice. Consult with your financial advisor and/or CPA before taking any of the actions described above. If you would like to discuss how these provisions apply to you, please contact one of your ADKF service team members. If you are not yet a client of our firm, we would be delighted to conduct an initial consultation at no charge.READ MORE