In response to the COVID-19 economic turmoil, the CARES Act was signed on March 27, 2020, to aid taxpayers. Part of this act impacts Individual Retirement Accounts (IRAs) and the Required Minimum Distributions (RMDs) for certain taxpayers.
RMDs are completely waived in 2020 for both account holders and beneficiaries. This applies to individuals who turned 70 ½ in 2019 but were waiting until 2020 to take the first distribution. If you elect to not draw any funds from your IRA, estimated taxes normally paid should be reevaluated. Lower-income may drop you into a lower tax bracket and lessen your tax burden for 2020.
If you have already taken all or part of your 2020 distribution (or 2019 RMD in 2020 as mentioned above), it can be rolled over within 60 days. For additional relief, if the 60-day window falls between April 1, 2020, and July 15, 2020, then the rollover window is automatically extended until July 15th.
For taxpayers under 59 ½, IRAs can serve as a source of income to get through these tough times. The CARES Act has eliminated the 10% early withdrawal penalty on distributions up to $100K if the money was needed due to financial hardship relating to COVID-19. Additionally, an election can be made to report the distribution evenly over the next three years with the option to pay back all or part of the distribution during that time to reduce the taxable income.
Depending on your situation, now may be a good time for a Roth conversion. Since RMDs are not required in 2020, a conversion from a traditional IRA to a Roth IRA in 2020 can be made without first satisfying the typically required RMD.
As we continue to learn more about the new and existing programs aimed to assist those in need, we will be updating our social media pages and website with articles and links. If you want more information on COVID 19 relief or need help with tax preparation, contact our tax professionals at The Innovative CPA Group at 203-489-0612.Or contact us online.