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The Coronavirus Aid, Relief, and Economic Security Act, 
The CARES Act” provides tax relief to individuals and businesses

After days of furious negotiations, Congress has passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The $2.2 trillion price tag for tax relief and incentives for individuals and businesses makes it the most expensive piece of legislation ever passed. It includes the greatly anticipated provision for recovery rebate credits to individuals.  Here are some of the major aspects of The CARES Act. 

You may have many questions about how this will affect you and your taxes.
If you have any questions, please give us a call.

We are here to help.

Anderson, Spector and Co PC


 

ASPECTS of The CARES ACT: Special Rules for Use of Retirement Funds

Posted by Admin Posted on Apr 06 2020

Special Rules for Use of Retirement Funds

The Coronavirus Aid, Relief, and Economic Security (CARES) Act provides relief designed to increase liquidity in the economy including modifications to the rules on the use and distribution of retirement funds.

 Withdrawals: The CARES Act waives the 10-percent penalty on early withdrawals up to $100,000 from qualified retirement plans for coronavirus-related distributions. For purposes of the penalty waiver, a coronavirus-related distribution is one made during the 2020 calendar year, to an individual (or the spouse of an individual) diagnosed with COVID-19 with a CDC-approved test, or to an individual who experiences adverse financial consequences as a result of quarantine, business closure, layoff, or reduced hours due to the virus.

 Any income attributable to an early withdrawal is subject to tax over a three-year period, and taxpayers may recontribute the withdrawn amounts to a qualified retirement plan without regard to annual caps on contributions if made within three years. This relief is commonly granted by Congress in the wake of major disaster declarations, such as those made after a major hurricane.

 Loans: The maximum loan amount is increased from the lesser of $50,000 or 50% of vested balance to the lesser of $100,000 or 100% of vested balance. This increase applies to loans made between March 27, 2020 (the date of enactment of the CARES Act) and December 31, 2020.

 In addition, if a qualified individual has a loan repayment due date after March 27, 2020 and before December 31, 2020, on an outstanding loan, the payment due date is delayed one year (or, if later, until the date which is 180 days after March 27, 2020). Any subsequent repayments with respect to the loan will be adjusted accordingly and the five-year period for repayment is disregarded.

 Similar to the rules on withdrawals, a qualified individual is an individual (or the spouse of an individual) diagnosed with COVID-19 with a CDC-approved test, or to an individual who experiences adverse financial consequences as a result of quarantine, business closure, layoff, or reduced hours due to the virus.

Required Minimum Distributions: The CARES Act also waives required minimum distributions, regardless of whether the taxpayer has been impacted by the pandemic. The waiver applies for calendar year 2020 to defined contribution plans, certain annuity plans, and traditional or Roth IRAs. The waiver allows seniors to hold on to their plan assets when they might otherwise have to sell at market lows.

Additional Modifications:

  • IRA Contribution Deadline. The deadline to make an IRA contribution is extended to July 15, the extended due date for tax returns.
  • Mandatory 20% Withholding. The mandatory 20% income tax withholding on rollovers is also suspended for 2020.

If you would like more information on modifications to the rules on the use and distribution of retirement funds, please call our office. We are here to help you.

Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, Anderson, Spector & Co., P.C. would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.