By Jim Terwilliger
‘What is important is knowing how to adjust your retirement planning strategy to exploit [the CARES ACT] provisions in a way that is most beneficial to you.’
On May 27, President Trump signed the CARES (Coronavirus Aid, Relief, and Economic Security) Act of 2020, providing unprecedented emergency relief to individuals and businesses impacted by COVID-19. Included in the legislation are several provisions impacting individual retirement accounts (IRA) and employer retirement plans. This article is intended to provide a high-level overview of just a few of these provisions.
Required Minimum Distributions (RMDs) Waived for 2020
This year’s RMDs are waived for all folks expecting to take RMDs from IRAs and most defined-contribution employer retirement plans in 2020. This waiver also applies to beneficiaries of inherited IRAs, Roth IRAs, and employer plans.
Also waived are any remaining 2019 first-year RMDs having an ultimate due date of April 1, 2020 and not withdrawn by Jan. 1, 2020. Fortunately, the CARES Act provides for a reversal of any Jan. 1 to April 1, 2020 distribution depending on circumstances as described below.
Not waived are distributions from defined-benefit employer plans, annuitized pension plans or non-governmental 457(b) deferred-compensation plans.
Unwanted Distributions Can Be Reversed
This helps those who already took what they thought were required distributions and now find they wish they had not. Such distributions can be reversed through an indirect rollover. Normally, non-RMD distributions taken from an IRA can be returned to the same IRA or another IRA if 1) the money is returned within 60 days and 2) there must not have been an IRA-to-IRA transfer within the previous 12 months. Accordingly, a reversal can accommodate only one unwanted 2020 IRA distribution.
IRS Notice 2020-23 relaxed the 60-day limitation for an IRA distribution taken during the Feb. 1 to May 15 timeframe. For such a distribution, the deadline for returning the distribution is July 15. Absent a future notice, a January 2020 distribution is not reversible.
A reversed distribution is not taxable. Any tax withholding associated with the distribution, however, is not reversible. This withholding will be returned when filing a 2020 income tax return next year. Alternatively, one can reduce other 2020 withholding or estimated tax payments to compensate.
Rather than reverse a distribution, another option is to do a taxable Roth conversion, which is not subject to the once-per-year rule. The attractiveness of this option depends on one’s marginal federal tax bracket. A conversion normally must take place within 60 days, although IRS Notice 2020-23 temporarily relaxed that constraint.
A reversal of employer plan distributions follows the same rules, although there is no limitation on the number of distributions that can be reversed. Also note that non-spouse beneficiaries are not able to reverse an RMD from an inherited IRA or employer retirement plan.
Additional Options for Those Directly Impacted by COVID-19
Coronavirus-related distributions (CRDs) up to $100,000 from IRAs or employer retirement plans are available to those who are diagnosed with COVID-19, whose spouses or dependents are so diagnosed, or who suffer adverse financial consequences as a result of the virus (as defined by CARES). Those under age 59-1/2 are exempt from a 10% early withdrawal penalty.
CRDs are taxable to the account owner. Paying the tax over a three-year period is the default option. To avoid taxation, CRDs can be repaid to the same/another IRA or eligible retirement plan with the repayment treated as having satisfied the 60-day rollover requirement if repaid during the three-year period following the date when the CRD was received.
Charitable Giving Enhancements
The CARES Act includes two provisions related to charitable giving. One allows for up to a $300 above-the-line charitable federal income tax deduction for folks who take the standard deduction. The other allows for up to 100% of adjusted gross income (vs. 60% standard) to be treated as a charitable deduction for taxpayers who itemize. For either, the contribution must be made in cash and does not include contributions to donor-advised funds or private foundations.
Additionally, it continues to be a sound tax-efficient strategy for those age 70-1/2 or older to make qualified charitable distributions (QCDs) from their IRAs directly to charity, even if not used to offset the taxability of RMDs.
2019 Contributions to IRAs and Roth IRAs
Consistent with the Treasury extending the tax return filing date to July 15, the date for making 2019 IRA and Roth IRA contributions is extended to the same date. Normally, contributions for a prior year must be made by April 15.
We’ve summarized some key CARES Act provisions. What is important is knowing how to adjust your retirement planning strategy to exploit these provisions in a way that is most beneficial to you. Partnering with a trusted financial planner is a great way to do just that.
Myles said the annual festival membership drive was launched just a week prior to the pandemic hitting.
“We were in the process of signing contracts and collecting funds and it all came to a screeching halt,” he said.
The festival features more than 100 individual and family memberships, largely community residents who support the event from a $25 to a $200 level.
Businesses also join as members and buy in from $300 to $900. Sponsorships range from $1,000 and up, with several taking on significant financial backing for attractions such as the much-heralded Fireworks by Grucci display on Saturday nights of the festival.
Fireworks’ co-sponsors this year were Pathfinder Bank and Exelon Generation, while in-kind sponsors included the Port of Oswego Authority and New York State Canal Corporation.
Much of Myles’ job is to secure and build on sponsorships.
“Securing funds for the festival takes a lot of my time. I work diligently with sponsors and I enjoy it. I’ve met a lot of interesting people over the last several years,” he said.
Among those hurt the most by the cancellation are vendors and musical performers being that traveling from event to event is their livelihoods.
“They are all being canceled,” Myles said. “They are not going to make any money in the summer of 2020.”
Early in the pandemic, several performers contacted festival organizers to say they were going to be unable to attend because of financial constraints.
Locally, businesses such as restaurants and hotels will suffer, he said. “Those businesses are being decimated,” he said. “For many people, not having the festival just compounds problems.”
Meanwhile, the level of construction going on in the city and a closed Wright’s Landing Marina also played a part in the decision-making process.
Many projects are ongoing and feature closed roadways and sidewalks, such as the Litatro Building, 22 Crosswords and Harborview Square on the west side and Lake Ontario Water Park and East Lake Commons on the east side.
“Next year, a lot of that will be done, we will have a new Wright’s Landing Marina and additional improvements will be made to Breitbeck Park,” Myles said.
“I think if there was a year to cancel, this was it,” he said.
Many fest-goers come by boat and stay at the Westside marina.
The city’s Department of Public Works recently began construction on several improvement projects at Wright’s Landing Marina.
The Wright’s Landing Marina Boater Services Improvement project is designed to upgrade and revitalize Oswego’s waterfront.
The project will see improvements of existing bathroom and shower facilities, a new boater access services building, new pavilion, installation of fire pits along the waterfront, while the marina will be made accessible for physically challenged individuals.
James Terwilliger, CFP®, is senior vice president, senior planning adviser at CNB Wealth Management, Canandaigua National Bank & Trust Company. He can be reached at 585-419-0670 ext. 50630 or by email at firstname.lastname@example.org.