While protecting small businesses is the CARES Act’s primary purpose, it also contains provisions that benefit Elder Law and estate planning clients and their families. The National Academy of Elder Law Attorneys (NAELA) requested an article to explain those benefits to my colleagues in the Elder Law and estate planning bar. The article, Waiver of Required Minimum Distributions and Other Provisions Affecting Withdrawals From Qualified Plans and IRAs Under the CARES Act appears in the April edition of NAELA News + Journal-NAELA News Online and was circulated to all NAELA members by email.
Here are some details from the article that are important to know:
The Act waives required minimum distributions (RMDs) for specific defined contribution plans and IRAs for the 2020 calendar year. The waiver not only applies to participants and account owners, it also applies to beneficiaries who inherited IRAs. The Act also waives RMDs for individuals who turned 70 1/2 in 2019 but elected to defer their initial RMD to April 1, 2020; both the 2019 and 2020 RMDs are waived. If an individual has taken their RMD, the waiver is not a deferral. Waived RMDs need not be made up.
However, the Act affects no other distribution rules, including the right to rollover the distribution within 60 days of receipt. If someone took an RMD before the effective date of the Act and 60 days have not passed since the time of the distribution, they may rollover the distribution. Usually, there is a mandatory 20 percent tax withholding requirement; however, the individual can replace the tax withheld with their personal assets.
The Act allows coronavirus-related withdrawals from 401(k), and IRA accounts up to $100,000 during 2020. Individuals under age 59½ do not incur the 10 percent penalty for early withdrawal if:
- An account owner is diagnosed with COVID-19, or
- A spouse or dependent is diagnosed with COVID-19, or
- An individual who experiences adverse financial consequences because of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to the coronavirus, or
- Closing or reducing hours of a business owned or operated by the individual due to coronavirus, or
- Other factors, as determined by the Treasury Secretary.
To read the entire article, visit NAELA’s website using the link above.
About the Author
Stephen J. Silverberg, Esq., CELA, CAP, AEP, Fellow, Roslyn Heights, New York, is a member of the NAELA Tax Section Steering Committee, and the NAELA News Editorial Board. He is a NAELA Past President and Fellow.