Coronavirus Relief: CARES Act Impacts IRAs and Retirement Plans | Millennium Trust Company

Coronavirus Relief: CARES Act Impacts IRAs and Retirement Plans

April 7, 2020
By Millennium Trust

On March 27, 2020, the President signed the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) into law. The legislation contains more than $2 trillion of stimulus and relief measures including higher unemployment benefits, tax relief and student debt relief. The Act has been widely publicized, and provides Americans much needed assistance as we cope with the COVID-19 pandemic.

The new law has several provisions that specifically impact qualified retirement plans, including IRAs, to help provide relief for many Americans whether they are directly affected by coronavirus or not.

Taking a required minimum distribution in 2020? You don’t have to.

The CARES Act waives the requirement to take a required minimum distribution (RMD) in 2020 and is available to all qualified retirement plan account owners, not just those directly affected by the COVID-19 pandemic, including beneficiaries of inherited IRAs.

Generally, retirement account owners, must begin taking RMD’s when the owner reaches a certain age. This age is 70½ for individuals born before July 1, 1949 and age 72 for individuals born on or after July 1, 1949, as recently changed by the SECURE Act. The CARES Act waives the requirement to take a RMD in 2020.

For inherited IRA beneficiaries, some may be subject to a “five year rule” requiring the account to be distributed within five years of death of the IRA owner. For those beneficiaries subject to the “five year rule”, 2020 is disregarded – in other words, the beneficiary has an additional year to completely distribute the account.

Have you already taken an RMD in 2020? If so, the RMD is now treated like a normal, non-RMD distribution. On April 9, 2020, the IRS issued Notice 2020-23, which indirectly included an extension of the 60-day rollover rule for IRAs until July 15, 2020, but only for RMDs taken between February 1 and May 15 of 2020.

If an RMD was taken in January of 2020, the extension does not apply, and the RMD cannot be returned to an IRA to avoid taxes due.

However, if an account owner chooses to roll the RMD back into the account, he or she would not be eligible to complete any other rollovers for 12 months.

Direct trustee-to-trustee transfers from one IRA provider to another IRA provider, or to employer sponsored retirement plans, are not restricted.

If you already took an RMD in 2020 and are contemplating putting it back into your IRA or retirement plan, we encourage you to consult with your tax advisor.

Affected individuals can take $100,000 out of retirement plans penalty-free.

Early withdrawals from qualified retirement plans (before the age of 59½ unless certain criteria is met) are subject to certain penalties, including a 10% early withdrawal penalty, in addition to income tax on the distribution.

If you are an IRA owner, or other qualified retirement plan account owner, affected by the COVID-19 pandemic, you may take a distribution from your IRA of up to $100,000 and will be entitled to special tax benefits. This is called a “coronavirus-related distribution,” or CRD, and must occur in 2020.


A CRD entitles the account owner to three benefits:

1. The income from the distribution can be spread equally over three years on the account owner’s federal income tax return.

2. If the account owner is under age 59½, the 10% early distribution penalty is waived.

3. The account owner can repay some or all of the CRD within three years, in which case it is treated like a rollover.

A CRD may also be taken from an inherited IRA and from a Roth IRA, provided that the total amount taken from all IRAs may not exceed $100,000 per affected individual.


To be eligible to receive a CRD, the account owner must meet one of three criteria:

1. The account owner has been diagnosed as having the coronavirus by a test approved by the Centers for Disease Control and Prevention (CDC).

2. The account owner’s spouse or dependent has been diagnosed with the coronavirus.

3. The account owner experienced adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to the coronavirus, being unable to work due to lack of child care due to the coronavirus, or because of the closing or reduced hours of a business owned or operated by the account owner.

Tax Day extension means IRA contribution extension.

Since the IRS has extended the federal income tax filing date to July 15, 2020, the deadline to contribute to an IRA has been extended to July 15, as well. If you are under age 50, the contribution limit is $6,000, and if you are age 50 or older, the contribution limit is $7,000.

Normally, Form 5498, which reports IRA contributions made for a tax year must be filed with the IRS and sent to IRA owners by June 1. The IRS, in Notice 2020-35, has extended the time IRA custodians will have to prepare Form 5498 for 2019 to August 31, 2020.

IRA custodians will likely need to report some 2019 IRA contributions (those made on or shortly prior to July 15, 2020) on the 2020 Form 5498.

Be sure to consult with your tax advisor to determine what is best for your situation.

To stay up-to-date on the most recent regulations for IRA owners, visit our COVID-19 Updates: CARES Act Impacts IRAs.

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The material in this blog is presented for informational purposes only. Millennium Trust Company performs the duties of a directed custodian, and as such does not sell investments or provide investment, legal or tax advice.

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