The CARES Act included several changes to retirement plan contributions, loans, and withdrawals to provide relief to taxpayers as a result of COVID-19. Below is an overview some of the major changes. Please view the linked IRS pages for additional details.
No Age Limit on IRA Contributions
There are no longer age limits on contributing to IRA accounts. From the IRS’ website, “For 2020 and later, there is no age limit on making regular contributions to traditional or Roth IRAs.” For 2019, taxpayers 70 ½ years of age and older could not contribute to a traditional IRA. There was no age limit on Roth IRA contributions for 2019. For now, this appears to be a permanent change that will apply to later tax years as well.
RMDs (withdrawals) NOT required for 2020
For the 2020 tax year, taxpayers are not required to take required minimum distributions (RMDs) from IRA, 401k, and other defined benefit plans. According to a June 23, 2020 IRS News Release, “The CARES Act enabled any taxpayer with an RMD due in 2020 from a defined-contribution retirement plan, including a 401(k) or 403(b) plan, or an IRA, to skip those RMDs this year. This includes anyone who turned age 70 1/2 in 2019 and would have had to take the first RMD by April 1, 2020.”
Relief for taxpayers that need Withdrawals or Loans from Retirement Plans
The remaining topics below apply to qualified individuals meeting certain criteria spelled out in this IRS News Release, simplified here to be taxpayers with family members either diagnosed with COVID-19 or had work hours or income reduced as a result of COVID-19.
- Avoid the 10% Early Withdrawal Penalty on Distributions: Qualified taxpayers can avoid the 10% early withdrawal penalty. Otherwise, taxpayers that withdraw funds from retirement plans before turning 59 ½ years old face a 10% early withdrawal penalty in addition to the amount withdrawn being taxable income.
- Spread Tax on COVID-19 Related Withdrawals Over 3 Years: Qualified taxpayers have the option to include the taxable income from COVID-19 related withdrawals over 3 years (one-third each year) rather than paying taxes on the full amount of the loan in the first year.
- Loans from Workplace Retirement Plans: The IRS’ News Release says, “Individuals eligible to take coronavirus-related withdrawals may also, until September 22, 2020, be able to borrow as much as $100,000 (up from $50,000) from a workplace retirement plan, if their plan allows. […] For eligible individuals, plan administrators can suspend, for up to one year, plan loan repayments due on or after March 27, 2020, and before January 1, 2021. A suspended loan is subject to interest during the suspension period, and the term of the loan may be extended to account for the suspension period.”
Are taxpayers able to take Loans from an IRA?
No. The IRS’ News Release reiterates “Loans are not available from an IRA.” Individuals are able to make 60 day rollovers of funds withdrawn from an IRA. It is possible the IRS may extend the 60 rollover window or otherwise allow taxpayers to re-contribute the amount withdrawn to their IRA account, but without further guidance from the IRS, it may not be worthwhile to withdraw amounts from your IRA.
Discuss this Information with your Tax & Finance Professionals
Please note: the information on this website is intended to provide general advice to start the discussion with your tax and finance professionals. The information on this website may not apply to your specific situation. Only a experienced professional with the details of your specific situation can advise you on making the best decision. Contact your tax and finance professionals to discuss the information on this site to make an informed decision.