Special Rules for Use of Retirement Funds

Carrying on our tradition of providing you with Solutions Beyond the Obvious, we are pleased to bring you our “Ask the Experts” series of articles. In these articles, our Tronconi Segarra & Associates tax experts identify and explain the significant tax changes that were passed as part of the Coronavirus Aid, Relief and Economic Security (CARES) Act which can provide additional relief for businesses and individuals facing economic hardship as the result of the coronavirus pandemic. Contact your Tronconi Segarra & Associates tax advisor for more information about any of the topics discussed in these articles.

Mark A. Tronconi, CPA, MBA

The CARES Act contains relief provisions that are designed to assist taxpayers who are currently receiving Required Minimum Distributions (“RMDs”) from their defined contribution retirement plans, including IRAs. For the 2020 calendar year only, the RMD requirements are suspended. As a result, taxpayers who would otherwise be required to take an RMD during 2020 will not be required to do so this year. This waiver does not apply to defined-benefit plans.

If a taxpayer had taken their 2020 RMD prior to passage of the Act, he or she will have to include the RMD in their taxable income and pay income tax on it. It is possible, however, to escape paying tax on this RMD if the amount is repaid to the plan within 60 days from the date it was originally distributed by August 31, 2020 [see IRS Notice 2020-51]. An IRA owner or beneficiary who has already received a distribution from an IRA of an amount that would have been an RMD in 2020 can also repay the distribution to the IRA by August 31, 2020. The notice provides that this repayment is not subject to the one rollover per 12-month period limitation and the restriction on rollovers for inherited IRAs.

If you believe you meet this exception, you should discuss your situation with your Financial Advisor or your Plan Administrator and review your potential repayment options.

Required Beginning Date for Distributions

The CARES Act also delayed the beginning date for distributions from a traditional IRA, SEP IRA and a SIMPLE IRA. Prior to the Act, a taxpayer who reached age 70-1/2 had to begin taking distributions from their plan on or before April 1 of the year after which they turned 70-1/2. This date is known as the “required beginning date.” The CARES Act changed the required beginning date from 70-1/2 to 72 years old. It should be noted that Roth IRA owners are not required to take distributions over their lifetime.

Other Retirement Plan Changes under the CARES Act

To make accessing funds from a taxpayer’s retirement plan easier, the Act allows the taxpayer, even in a case where the taxpayer is under 59-1/2, to withdraw up to $100,000 from the plan. The distribution is NOT subject to the normal 10% penalty for early withdrawal. The distribution will still be considered as taxable income; however, the distributions can be included in their taxable income, spread over a three-year period. There are qualifications:

  1. The distribution must be made from an eligible retirement plan and made after the date of the enactment of the CARES Act and before December 31, 2020.
  2. It must be made to an individual who is diagnosed with the Coronavirus (SARS-CoV-20) based on a test approved by the CDC, or whose spouse or dependent has been similarly diagnosed.
  3. The taxpayer must be able to demonstrate an adverse financial consequence as a result of the coronavirus. Examples of financial hardship can be consequences from being quarantined, furloughed or laid off, having work hours reduced or being unable to work due to lack of child care.

If you believe your circumstances fit within these parameters, you should contact your plan administrator to see if you qualify for a distribution.

Based upon recently released guidance from the IRS, if a taxpayer includes their Corona-related distribution into their taxable income, either in the year of receipt or over the allowed three-year period, and decides to repay the distribution within the same three-year period, the distribution would be treated as if it were repaid in a direct “trustee-to- trustee” transfer so that no income tax would be due on the distribution. This would require the taxpayer to amend the prior years returns to recoup the tax they would have paid when originally including the distribution into their income.

See Coronavirus-related relief for retirement plans and IRAs questions and answers on IRS website for more information.

Please contact your Tronconi Segarra & Associates tax advisor for more information on this or any tax matter. If you do not have a Tronconi Segarra & Associates tax advisor, please call 716.633.1373 or Contact Us through our website with your question.



This article has been prepared for general guidance on matters of interest only; it does not constitute professional advice. You should not act upon the information contained in this article without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy of completeness of the information contained in this article; and, to the extent permitted by law, Tronconi Segarra & Associates LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this article or for any decision based on it.


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