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“Show Me Some Flexibility” – FAQs for the Retirement Planning Changes

| April 01, 2020
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Beyond the money offered and the tax filing deadline relief in response to the coronavirus (COVID-19) pandemic, Congress included helpful additional flexibility provisions for IRAs and 401ks when it passed The Coronavirus Aid Relief and Economic Security (CARES) Act. (I can’t tell you how many puns I’m holding back regarding the name of this bill. But, really, who cares about poor puns in times like these?)

The CARES Act gives a one-year suspension to some of the most bothersome aspects of retirement accounts: the required minimum distribution (RMD) rules and the penalty for early withdrawals. These are common-sense changes when people want the flexibility of keeping funds in the retirement accounts for a potential recovery or when younger people may need to withdraw funds from retirement accounts for an emergency.

I’ll focus here on the retirement planning changes. Please see my other blogs for additional changes in recent weeks. 

1. I’m 74 and have been taking an RMD from my IRA each year. Must I take one this year?


No. The CARES Act waives RMDs for 2020. No RMDs are required from any traditional IRA, Roth IRA, 401k plan or 403b plan.  


2. I have already taken my 2020 RMD.  Can I roll it back into my account? 

Normally, you cannot roll your RMD back into a retirement account; however, the IRS is allowing RMDs taken in 2020 to be rolled back into a retirement account. If you made a withdrawal earlier in the year, you can redeposit it up until August 31, 2020. (Non-spouse inherited IRA RMDs are an exception and cannot be rolled back into the retirement account.)

3. After my mother died, I inherited her IRA and have been taking RMDs each year. Does this suspension apply to inherited IRAs as well?

Yes. You are not required to take an RMD from any inherited IRA or 401k account.


 4. Can I continue to direct my RMD to charity as in years past?


Yes. Anyone may continue to take withdrawals or to direct their RMD to charities as a qualified charitable distribution. For 2020, you will not face any penalty if you do not take the RMD.


 5. I have set up an automatic RMD with my IRA custodian that happens every July. Must I do something to stop this or will it stop because of the new provisions?


Most likely, yes. Each custodian may have different approaches, but my understanding is that individuals will need to act to stop an automatic RMD that was set up in previous years. For our investment clients, we will be working with you to learn your preferences.  

 6. What are the relief provisions for the early withdrawal penalties for someone younger than 59.5?


A new waiver has been established for the 10% early withdrawal penalty from retirement plans and IRAs.  The usual 10% penalty is waived if the withdrawal is coronavirus related and the amount does not exceed $100,000.

7. What qualifies as “coronavirus related” to escape the 10% penalty?


  • The individual, spouse, or dependent is diagnosed with the coronavirus, or


  • The individual 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 coronavirus, or


  • The individual experiences adverse financial consequences as a result of closing or reducing hours of a business owned or operated by the individual due to coronavirus.

8. Will there be income tax due as well?


Yes, if the withdrawal is from a traditional IRA or from a pre-tax retirement plan, federal income tax will still be due on the withdrawal. But, in another bit of flexibility, you can spread the withdrawal ratably over a three-year period. For example, a $60,000 coronavirus-related distribution in 2020 can either be included in individuals’ taxable income in 2020 or can be spread over a three-year period.


9. What are other new provisions affecting retirement plans from the CARES Act?


  • Withdrawals made related to the coronavirus may also be redeposited back into the retirement account within three years (either as a lump sum or series of payments).


  • The loan dollar limits for 401ks will be temporarily increased to the lesser of $100,000 or 100% of the participant’s vested balance (applies to loans taken within 180 days of the enactment). This is an increase from the current maximum up to $50,000 or 50% of the vested balance.


  • One-year delay for 401k loan repayments due in 2020 with subsequent payments adjusted to take into account the delay. Loan durations (including the 5-year maximum) may also be disregarded during this period, if payments are delayed.


Keep in mind that many changes are happening while government agencies and even Congress itself are working in a disrupted environment. So, many clarifications will likely be coming out in the future. Some of the 401k provisions, such as loan terms, may require a plan amendment at your employer’s plan.


The IRS has said it will update all key information as it becomes available at The information above is obtained from sources believed to be reliable. If your particular situation is not covered by the above, then please contact us.

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