Updated: Relief for Retirement Account Owners

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law. Since then, the U.S. Treasury Department has issued guidance to clarify and, in some cases, expand the provisions of the CARES Act dealing with retirement accounts and the relief offered to retirement account owners and/or beneficiaries.

We’ll answer some questions you may have about this new guidance and how it could impact you.

I understand that Required Minimum Distributions (RMDs) are not required this year. Has this changed?
No, RMDs from any IRA, 401(k), 403(b), governmental 457(b) or federal Thrift Savings Plan account are still suspended for 2020. RMDs for beneficiaries of these accounts are also suspended for 2020.

I already took some or all of what I thought was my 2020 RMD. Is there a way for me to get that back into my account?
Yes, in late June, the Treasury Department released IRS Notice 2020-51, which provides substantial relief to taxpayers who took distributions of what would have been RMDs but for the CARES Act. In short, any 2020 distributions that were already taken and would have been an RMD can now be rolled back into an IRA or qualified plan by Aug. 31, 2020.

What about the 60-day rollover rule?
For distributions taken earlier this year that would have been RMDs (if not for the CARES Act), Notice 2020-51 extends the 60-day rollover window to Aug. 31, 2020. As such, if you took such a distribution and would like to return it (to a retirement account), you have until then to take action.

I already completed a 60-day IRA rollover within the past year. Can I still “fix” my unwanted 2020 “RMD”?
Yes! Notice 2020-51 provides relief for IRA owners who would otherwise be impacted by the once-per-year rollover rule. More specifically, rollovers of distributions that have already been received, and that would have been 2020 RMDs but for the CARES Act, will be disregarded for purposes of the once-per-year rollover rule, provided the rollover is completed by Aug. 31, 2020.

Is the rollover relief available for beneficiaries as well?
Yes! In an unprecedented move that surprised many observers, the IRS is even allowing beneficiaries to return unwanted 2020 distributions (that would have been RMDs, if not for the CARES Act). The rollover must be deposited back into the inherited IRA that it was withdrawn from, and the deadline to complete the rollover is again Aug. 31, 2020.

I had federal and/or state income tax withheld from distributions I already received. Will that money be put back automatically and if not, what do I do?
If you had taxes withheld on your RMD, and you only roll the net amount (the amount you received after taxes were deducted) back into your IRA, then the amount of tax withheld will be taxable on your 2020 tax return. As an alternative, if you have the ability to “make up” the amount withheld with other funds, you can roll the full amount of your distribution (the amount you received, plus the taxes that were withheld) back into the IRA. That will eliminate any taxation of your RMD in 2020, because the entire amount will have been rolled back. You will still receive credit for the taxes withheld when you file your 2020 income tax return, though, so you may want to talk to your tax preparer and adjust your estimated taxes to take the withheld amounts into account.

Has the IRS expanded the availability of Coronavirus-Related Distributions?
Yes. In June, the IRS released Notice 2020-50, in which it significantly expanded the conditions for which an individual may qualify to take a Coronavirus-Related Distribution. More specifically, individuals who have had pay or self-employment income reduced due to COVID-19 and individuals who have had a job offer rescinded or the start date of a job delayed due to COVID-19 are now eligible to take such distributions.

In addition, Notice 2020-50 extends the ability to take a Coronavirus-Related Distribution to those who have had a spouse or household member financially impacted by the situations described in the CARES Act and as added to by Notice 2020-50.

As a result, those eligible to take a Coronavirus-Related Distribution now include:

  • Anyone, plus their spouse or dependent, who is diagnosed with COVID-19 by an approved test.

  • Anyone who experiences adverse financial consequences resulting from the individual, spouse or household member who:

    • Is quarantined, furloughed, laid off or has work hours reduced due to COVID-19.

    • Is unable to work due to lack of childcare due to COVID-19.

    • Is closing or reducing hours of a business they own or operate due to COVID-19.

    • Has pay or self-employment income reduced due to COVID-19.

    • Has a job offer rescinded or start date of a job delayed due to COVID-19.

As a reminder, benefits of Coronavirus-Related Distributions, which are limited to a maximum combined amount of $100,000 from all retirement accounts and which must be taken in 2020, include the following:

  • Exemption from the 10% early distribution penalty for those under age 59½.

  • By default, the income from the distributions is split evenly on the 2020, 2021 and 2022 income tax returns. Alternatively, taxpayers may elect to include all the income in 2020.

  • The distributions may be rolled over (repaid) for up to three years from the date the distribution is received, thus eliminating the income taxes that would otherwise be owed on the distribution.




The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Nine Points to Consider on the Outlook for Equities- Larry Swedroe

Given the volatility in the financial markets beginning the week of February 20th, it’s helpful to review the state of the U.S. economy entering into this stressful period, what’s happened since, and some of the potential economic impacts. Here is my take on those topics.

  • At the beginning of 2020, the U.S. economy was in very strong shape, with unemployment falling and the labour force participation rate and wages rising.
  • Compared to 2008-09, this is not a financial crisis but rather a health crisis, which tends to be much shorter in duration (typically several months) and which should lessen in magnitude as the Northern Hemisphere approaches spring and summer. Banks are in the strongest capital positions ever, and strong banks with the ability to lend are obviously important to the sustainability and health of the economy during times of crisis. Further, the ratio of consumer debt to gross domestic product (GDP) is about 75 percent, its lowest since 2002, down from almost 100 percent in 2008.
  • Lower interest rates will help governments, consumers and corporations refinance debt, leading to lower debt burdens within those sectors of the economy. However, lower interest rates, along with lower stock prices, will put further stress on state and local pension plans, many of which are already severely underfunded. In order to minimise risk, we have been avoiding buying bonds from a significant number of these states. A sustained period of low rates will also impact savers, increasing the need for other parts of the portfolio to generate the returns needed to fund retirement and other goals. We also expect that we will see yields on short-term fixed income, such as money market funds, drop substantially as well, increasing the “cost” of cash.
  • While bad for energy companies, their stockholders and potentially their bondholders, collapsing energy prices are effectively a big “tax cut” for consumers. Also, companies that are heavy energy users (e.g., airlines) will benefit, to some degree offsetting the losses associated with lower energy prices in other sectors of the economy.  However, there is significant risk to the high-yield corporate bond market, as there is $85 billion of high-yield debt issued by energy companies, and with oil prices below $40 a barrel, many of these companies will struggle to generate profits. Much of that debt matures in the next four years. In this type of environment, one can expect the high-yield corporate bond market to be highly correlated with the stock market, which is one of the reasons we generally do not recommend high-yield bonds as part of client fixed-income portfolios. High-yield bonds do not provide effective diversification within a portfolio that already owns stocks.
  • The U.S. has the lowest percentage of trade relative to GDP, at about 12 percent (country trade-to-GDP ratios). In comparison, most of Europe varies from around 50 percent (Germany) to the high 80s (Belgium, Netherlands). Japan is about 16 percent and the UK is about 30 percent. So, if there is a prolonged deterioration in trade, the U.S. should be less impacted than most countries.
  • If the economic disruption associated with the coronavirus worsens, governments are likely to take action to address issues, such as coming out with loan programs to bail out specific industries (as the government did during the 2008-09 crisis for General Motors and the banking industry) and enact fiscal stimulus (tax cuts or other programs to more directly help those financially impacted by the coronavirus) [1] . Given possibilities like this, one must also keep in mind that markets are forward-looking, recovering well before the economy does, just as they tend to fall before the economy is materially disrupted.
  • Markets generally do a good job of incorporating both good and bad news and anticipating potential impacts on the economy. When we see markets change, it is almost always because of new information that couldn’t have been reliably forecast in advance. However, markets can also fall for noneconomic reasons due to a cascade of sellers who reach their get-me-out point, have margin calls, or are covering short put options positions that are held by sellers of volatility insurance and sellers of structured notes (which limit downside equity risks); or market participants who are trading with the trend. In addition, banks and investment firms using value at risk (VaR) metrics to assess possible losses on their books for any single day may have to sell off risks as volatility increases. Market participants can sometimes exacerbate downward trends in markets, but we still believe it’s best not to try to predict these occurrences but rather to be aware they are possible. Further, if you sell, you have no way of knowing when to get back in or when trends like the above could reverse.
  • While stocks and risky fixed-income assets or pseudo fixed-income strategies, such as dividend paying stocks, REITs (real estate investment trusts), etc., are falling in value, safe bonds are rising in value, demonstrating their value as dampeners of portfolio volatility, which is why we include them in portfolios. Some “true” alternative strategies, such as marketplace lending, reinsurance and trend-following, have held up very well and have generally generated positive returns on a year-to-date basis.
  • Finally, remember that bear markets are periods when stocks are transferred from weak to strong hands, as does wealth when recoveries occur. We have recovered from every past crisis, which we tend to experience with great frequency, about every two or three years. Further, we recovered quickly in the past from the health crises of SARS, MERS and Ebola.

[1] On Sunday night, March 15th, the Federal Reserve announced that it cut the Fed funds rate to effectively zero, a drop of a full 1 percent. In addition, it announced a massive $700 billion bond-buying program. These actions will provide cover for other central banks to cut rates without fear of their currencies collapsing. Congress is also working on a massive stimulus bill, on top of the $8.3 billion approved last week by the Senate. Governments around the world are certain to follow with packages of their own.   

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