The CARES Act - Q&A
/As the world adjusts to a “new normal,” we wanted to share some information with you about the Coronavirus Aid, Relief and Economic Security (“CARES”) Act and about how it may impact you and your family. The $2 trillion stimulus package was signed into law on March 27, 2020. This Act brings with it a host of changes for individuals and small businesses in an effort to provide support to our country’s citizens and economy. So, what does the largest relief package in history mean for you? Reach out to your Gilbert & Cook team to learn more about YOUR specific situation, and in the meantime, here are a handful of inquiries that we’ve recently addressed.
Q&A: Below are some questions that we've received and the answers we provided.
2020 REQUIRED MINIMUM DISTRIBUTIONS
With the CARES Act, all Required Minimum Distributions (“RMDs”) for 2020 have been waived and are not required to be taken. This rule applies to all Traditional IRAs, SEPs and Simple IRAs, as well as Employer-Sponsored Plans such as 401(k)s and 403(b)s. Additionally, if you are the beneficiary of an Inherited IRA and have been taking required distributions, this waiver for 2020 applies to you as well. It is important to keep in mind that, as of right now, this waiver only applies to 2020 required distributions.
Q: What if I’ve already taken my 2020 Required Minimum Distribution? Is there any way to benefit from the CARES Act waiver?
A: If you have already taken your RMD for calendar year 2020 and have no need for it, there are a couple of options available to you.
Option 1: If your RMD withdrawal took place within the last 60 days, you can simply write a check or transfer money in an amount equal to your RMD back into an IRA in your name before the 60-day window closes. The entire transaction would merely be treated as an IRA Rollover that you’re allowed to do once within a 365-day period (“once-per-year rollover rule”).
Option 2: If your RMD withdrawal was very early in the year and you are no longer within the 60-day window, there MAY be another option available to you (although we sincerely hope that no one is able to utilize it). IF YOU QUALIFY (see below), you would be able to utilize a Coronavirus-Related Distribution, which allows qualifying individuals to repay qualifying 2020 distributions within three years (via an IRA Rollover).
Q: What is a Coronavirus-Related Distribution?
A: A Coronavirus-Related Distribution is a distribution of up to $100,000 from a retirement account withdrawn in 2020 by an individual impacted by the Coronavirus in one of the following ways:
Personally diagnosed with COVID-19
A spouse or dependent is diagnosed with COVID-19
Have experienced financial distress due to being quarantined, furloughed, laid off, or had your hours reduced because of the disease
Unable to work because you lack childcare as a result of the disease
Own a business that has closed or have reduced hours because of the disease
If you qualify for a Coronavirus-Related Distribution (based on the above requirements), you will:
a) be exempt from the 10% Early Withdrawal Penalty (if you’re under age 59 ½);
b) not be subject to normal mandatory tax withholding requirements on certain distributions; and
c) be allowed to spread the tax on any such withdrawal over three years OR the distribution can be repaid within three years (via an IRA Rollover).
Q: I have an Inherited IRA and already took out my RMD for 2020. What options are available to me?
A: If you’ve already taken out your Inherited IRA RMD, unfortunately, there are no options to do a rollover back into any IRA.
Q: Am I still able to utilize a Qualified Charitable Distribution (“QCD”) from my IRA in 2020?
A: Yes. Although you wouldn’t be able to reduce your RMD (because RMD’s don’t apply for 2020), you can still utilize a Qualified Charitable Distribution from your retirement account to make desired charitable contributions and you will not incur income taxes on the QCD amount (nor can you obtain a charitable contributions deduction for the amounts contributed via the QCD).
“RECOVERY REBATE” CHECKS
The CARES Act also provides for “Recovery Rebate” checks (that should be processed in the coming weeks) as an advance payment on a calendar year 2020 tax credit. The Recovery Rebates will be provided to individuals other than a) nonresident aliens; and b) persons for whom a dependency deduction is allowed to another taxpayer. The Recovery Rebates will be tax-free. To be eligible for the advance payment, you must meet certain income requirements (based on your 2019 Adjusted Gross Income (“AGI”) (or 2018 AGI if your 2019 federal Individual Income Tax Return has not yet been filed)) as follows:
Single individuals will receive $1,200 if their adjusted gross income is below $75,000. For income between $75,000 and $99,000, there is a phase-out and anyone earning above $99,000, will not receive a check.
Married individuals will receive $2,400 if their adjusted gross income is below $150,000. For income between $150,000 and $198,000, there is a phase-out and anyone earning above $198,000, will not receive a check.
For each qualifying dependent under age 17, there will be an additional $500 added to your check.
While the Recovery Rebate you should receive in the next few weeks will be based on your 2018 or 2019 AGI, the ultimate tax credit that you will be entitled to under the CARES Act will be based upon your 2020 income, filing status and qualifying dependents.
Q: How will I receive my payment?
A: If you had a bank account attached to your federal tax return, the IRS will simply deposit your payment into that account. If you previously received a refund check in the mail or have not had your bank account attached to your federal tax return, you will either receive a check or may be able to update your banking information with the IRS in the coming weeks.
For those on Social Security, payment should be received in the account in which your Social Security payment is deposited and may be coming with your monthly Social Security check.
Q: What if my adjusted gross income is above the stated income limits in my last return…Will I qualify based on my 2020 income?
A: If you’re in this situation, you will still receive a benefit (via a credit against your 2020 federal taxes) based on your 2020 adjusted gross income. Unfortunately, you won’t receive that benefit now. When you file your 2020 tax return next year, you should receive a credit toward your taxes IF you qualify at that time.
To stay updated on the “Recovery Rebates,” we recommend checking in periodically to this page on the IRS site.
Additional Resources
Gilbert & Cook does not provide legal or tax advise. If you have questions specific to your legal or tax matters, please consult your Attorney or CPA. For additional web-based resources available to assist you in monitoring the spread of the coronavirus on a global basis, you may wish to visit the CDC and the World Health Organization.
Please send us any additional question you may have and we will do our best to address them in future newsletters. Thank you again for allowing Gilbert & Cook to help you Live A Life of Abundance. Your Gilbert & Cook team is here for you. Please call us if there is anything that you need.
About the Author:
Jarret Sheets, CFP®
Associate Advisor
Jarret joined the Gilbert & Cook team as an Associate Advisor in November 2019. In his role as Associate Advisor, Jarret walks alongside the Lead Advisor in helping clients and families achieve their goals.
