2020 Tax Planning Opportunities for Qualified Retirement Accounts

2020 Tax Planning Opportunities for Qualified Retirement Accounts

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By Ann Ramage, Tax Partner, Family, Executive & Entrepreneur Advisory Services Team

Qualified Retirement Account Tax Planning Opportunities

With the 2019 income tax extension deadline passed and as we begin the second half of 2020, giving some thought to project your 2020 income tax now may allow you to take advantage of time sensitive income tax planning opportunities surrounding your qualifying retirement accounts for 2020, including new developments based on IRS guidance issued June 19, 2020, and July 13, 2020.

The CAres act 2020 waiver from the REQUIRED MINIMUM DISTRIBUTION REQUIREMENTs

The CARES Act provides a 2020 waiver from the Required Minimum Distribution (RMD) requirements for defined contribution plans and Individual Retirement Accounts (IRA). If you would otherwise have been required to receive and report an RMD from your qualifying retirement plan for 2020, the CARES Act relieves you of that obligation for 2020. Until recently, if you had already received all or a portion of your RMD prior to the CARES Act’s effective date, the only remedy available appeared to be the 60 day qualified rollover option, if the 60 day period had not previously expired. However, in Notice 2020-51, the IRS has extended the time to effect a qualified rollover from 60 days to the period on or before August 31, 2020, for 2020 distributions already received (this includes repayment of the partial/full RMD to the related plan). This extension of time allows taxpayers that may have either taken their distribution early or taken partial distributions as part of a plan to receive the RMD throughout the year prior to the CARES Act to revisit whether they want to proceed with the income recognition in 2020 or defer it until 2021. In addition, this extension provides those taxpayers who may have proceeded with their RMDs in light of the CARES Act provisions a second opportunity to consider if they want to proceed with all or part of the income recognition in 2020. It is important to note that the IRS also clarified that while these rollovers are considered qualified rollovers, they are not considered in determining if the taxpayer has met the one rollover per 12 month period limitation.

Inherited IRAs

With respect to inherited IRAs for which the SECURE Act provisions apply which generally require full distribution within a five year period, Notice 2020-51 also clarifies that the five year period is now deemed to start in 2021 which allows beneficiaries additional time to consider planning options related to timing of receipt of the inherited IRA RMDs.

Retirement Withdrawal Options under the cares act

For those taxpayers younger than 59 ½ that have been impacted by COVID-19, the CARES Act provides a withdrawal option of up to $100,000 from eligible plans, including IRAs by December 30, 2020, without triggering the 10 percent additional tax for early distribution of funds.  Taxpayers have the option of repaying the amount to the IRA or plan within three years OR may elect to report the distribution as income over a three year period. To qualify for the COVID-19 distribution treatment, the taxpayer must meet one of the following requirements:

  • Receive diagnosis of SARS-CoV-2 or coronoavirus disease 2019 by a test approved by the CDC,
  • Have a spouse or dependent who received the SARS-CoV-2 or coronavirus disease 2019 by a test approved by the CDC,
  • Experience adverse financial consequences as a result of being quarantined, furloughed, laid off, having hours reduced, being unable to work due to lack of childcare due to COVID-19, closing or reducing of hours of a business owned/operated by individual due to COVID-19, or
  • Experience financial hardship/adverse financial consequences as a result of having reduction in pay/job offer rescinded or start date delayed, or closing or reducing hours of a business owned/operated by individual, spouse or member of household due to COVID-19.

These new developments provide flexibility and planning opportunities available for action as you consider income tax, business and other considerations and goals for 2020.

Questions on 2020 retirement planning opportunities? Contact us. We can help.

Additional Resources

Family, Executive & Entrepreneur Insights

COVID-19 Business Resource Library

Sources


About the Author

Ann has 20 years of experience providing tax planning opportunities and insights to operating entities, investment partnerships, trusts and high wealth individuals and families. Ann is a member of Keiter’s Family, Executive, and Entrepreneur Advisory Services team and works closely with individuals and family offices to address their various tax compliance, consulting and estate planning needs.

More Insights from Ann Ramage, CPA


The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.

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