UPDATE as of June 23, 2020: Anyone who already took a required minimum distribution (RMD) in 2020 from certain retirement accounts now has the opportunity to roll those funds back into a retirement account following the CARES Act RMD waiver for 2020. The 60-day rollover period for any RMDs already taken this year has been extended to August 31, 2020, to give taxpayers time to take advantage of this opportunity.

In addition to the rollover opportunity, 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 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.

The rollover period previously only applied to individuals who took their RMD between February 1 and May 15, 2020.

One of the many provisions in the Coronavirus Aid, Relief, and Economic Security (CARES) Act significantly loosens the restrictions on retirement plan distributions and loans, along with providing funding relief for defined benefit plans, giving employers important options to consider in these times of need.

Penalty-free retirement plan distributions are limited to $100,000, and may, subject to guidelines, be re-contributed to the plan or IRA. Income arising from the distributions is spread out over three years unless the employee elects to turn down the spread out.

Employers may amend defined contribution plans to provide for these distributions. Additionally, defined contribution plans are permitted additional flexibility in the amount and repayment terms of loans to employees who are qualified individuals.

What Constitutes a COVID-19 related Distribution?

Any distribution (up to $100,000) made on or after January 1, 2020, and before December 31, 2020, from an eligible retirement plan to a qualified individual.

Which Types of Plans Are Eligible?

• IRA
• Tax-qualified retirement plans
• Tax-deferred annuities 403(b) plans
• Section 457(b) governmental-sponsored deferred compensation plans

Which Individuals Can Take a Distribution?

A qualified individual is an individual:

• Who is diagnosed with the virus SARS-CoV-2 or with COVID-19 by a CDC-approved test;
• Whose spouse or dependent is diagnosed with such virus or disease by such a test;
• Who experiences adverse financial consequences as a result of being quarantined, being furloughed, laid off or having work hours reduced, being unable to work because of lack of child care, closing or reducing hours of a business owned or operated by the individual because of COVID-19 or other factors.

Are There Any Limits on Distribution?

COVID-19 related retirement plan distributions cannot exceed $100,000.

Can a Distribution be Contributed Back to a Retirement Plan?

Any individual who receives a COVID-19 related distribution may make one or more contributions back.

• Time frame: the three-year period beginning on the day after the date on which such distribution was received.
• Amount and eligible retirement plan: aggregate amount of contributions must be equal or less than amount of such distribution to an eligible retirement plan of which such individual is a beneficiary and to which a rollover contribution of such distribution could be made according to corresponding code sections.

Can Distribution be Included in Income?

Any amount required to be included in gross income for such tax year will be so included ratably over the three-year period beginning with such tax year, in the case of any COVID-19 related distribution unless a taxpayer elects to include in gross income in the tax year of such distribution.

What About Required Minimum Distributions (RMDs)?

All 2020 RMDs were waived. For those who have already taken their 2020 RMD, there are some options, depending on when the RMD was taken.

Anyone who already took a required minimum distribution (RMD) in 2020 from certain retirement accounts now has the opportunity to roll those funds back into a retirement account following the CARES Act RMD waiver for 2020. The 60-day rollover period for any RMDs already taken this year has been extended to August 31, 2020, to give taxpayers time to take advantage of this opportunity.

In addition to the rollover opportunity, 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 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.

The rollover period previously only applied to individuals who took their RMD between February 1 and May 15, 2020.

As requirements and guidance  change, Ericksen Krentel professionals are available to help. For tax credit and other tax-related matters, contact Kevin Neyrey at kneyrey@ericksenkrentel.com or Kenny Eldridge at keldridge@ericksenkrentel.com.

As questions or concerns arise, we ask that you contact us so we can address them as quickly as possible to ensure we continue to meet your needs. As a reminder, you can always monitor our COVID-19 Updates webpage by clicking here for the latest or monitoring our accounts on LinkedIn, Twitter or Facebook.

Staff Accountant Svitlana Baranivska contributed to this article.

About Ericksen Krentel

Ericksen Krentel CPAs and Consultants, founded in New Orleans, Louisiana in 1960 with offices in New Orleans and Mandeville, believes that serving as the clients’ most trusted adviser is grounded in going beyond the numbers.

That includes helping clients achieve their business and personal financial goals by providing innovative and exceptional services in the following areas: audit and assurance services, tax compliance and planning, outsourced CFO services and business valuations for a variety of industries; employee benefit plan audits; fraud and forensic accounting; business planning; IT consulting; loss calculations; and estate planning.

Learn more at www.ericksenkrentel.com.

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