On Friday, March 24th, President Trump signed the $2 trillion coronavirus stimulus bill. The CARES Act (Coronavirus Aid, Relief, and Economic Security) is intended to combat the negative economic impacts resulting from COVID-19. The intent of the legislation is to give companies and individuals financial help and flexibility given the uncertainty caused by the pandemic. There is a lot of information in the Act, but below are a few points we wanted to bring to your attention.
- Required Minimum Distribution (RMD) rules are waived for 2020. Retirees remain eligible, but are not required to take a minimum distribution from their retirement accounts in 2020. Withdrawals from a retirement account are taxable as income, so skipping a distribution reduces your tax bill. If you usually use the distribution to meet your annual cash needs, you can continue to take those distributions. However, if you can access cash from other accounts, you have the option to reduce, or eliminate your taxable distributions for 2020.
- Required Minimum Distribution (RMD) rules for inherited IRA accounts are waived for 2020. This exemption also includes inherited IRA accounts commonly referred to as Beneficiary Distribution Accounts (BDA).
- Federal tax returns and payments are now due on July 15th, 2020. April quarterly estimated tax payments have been delayed until July 15th as well. In addition, many states (including New Jersey) have changed filing dates to match the federal filing date and we expect more states to follow. Please confirm with your accountant for your particular state.
- IRA contribution deadline has been extended to July 15, 2020. The deadline for contributing to an IRA for 2019 has been extended to July 15th. As a reminder, the current IRA contribution limit is $6,000, plus an extra $1,000 if you are 50 or older.
- The 10% early distribution penalty has been waived for IRA accounts. Normally, distributions from an IRA account for individuals under the age of 59 ½ incur a 10% early withdrawal penalty. For 2020, this penalty has been waived for distributions up to $100,000. Normal income tax is still due on any distributions, but there is an added benefit as the tax can be spread evenly over three years. In addition, there is an option to repay the funds over a three-year period basically resulting in an interest free loan.
This is a very brief summary of some of the important changes made in the CARES Act. Please feel free to call us to discuss how this new law may impact your specific financial situation.