The 2019 IRA/ESA Contribution Deadline Extension & CARES Act retirement account provisions

Wealthsimple’s custodial broker, Apex Clearing Corporation, has released information about important changes to IRA contribution deadlines and the CARES Act retirement account provisions. Here’s what you should know:

Please note: you must notify our team if you are taking a Coronavirus Related Distribution from your IRA, so this is accurately recorded on your IRA distribution form.

2019 IRA/ESA Contribution Deadline Extension

The U.S. Department of Treasury and the IRS have extended key deadlines in response to COVID-19. This applies to anyone who had a federal income tax return or payment due on Wednesday, April 15 2020. It’s important to note: you do not have to be sick, quarantined, or have any other impact to qualify for this extension.

The due date for filing federal income tax returns has been postponed to July 15, 2020. That means the deadline to make contributions to your IRA for 2019, is also July 15, 2020.

CARES Act Retirement Account Provisions:

These provisions are intended to help individuals affected by COVID-19 access their IRA and retirement plan assets early — and replenish those assets later on.

New coronavirus-related distributions (CRDs)
Individuals may withdraw up to $100,000 in aggregate from eligible retirement plans without paying the 10 percent early distribution penalty tax. These distributions need to be made within the 2020 calendar year, to qualifying individuals.

Who qualifies?

• an individual (or the spouse or dependent of the individual) who is diagnosed with COVID-19 in an approved test; or
• an individual who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or having work hours reduced due to such virus or disease, being unable to work due to lack of child care due to such virus or disease, closing or reduced hours of a business owned or operated by the individual due to such virus or disease, or other factors as determined by the Treasury Secretary.

Which plans qualify?
Eligible plans include a 401(k), 403(b), 457(b) or IRA. It’s important to note that the limit for this distribution is $100,000 across all qualifying accounts (i.e. your total distribution can be no more than $100,000 regardless of where you draw it from).

How does repayment work?
CRDs can be repaid over 3 years, starting the day after a CRD is made. Repayments must be made to an eligible retirement plan or IRE. CRDs will be taxed ratably over a three-year period, unless an individual chooses otherwise.

Although CRDs may be rolled over, they are not considered “eligible rollover distributions” for certain purposes. Employers are not required to offer a direct rollover option. Employers are also not required to withhold 20 percent on a CRD or provide a 402(f) notice, which explains the tax and rollover options.

The 10% additional tax on early distributions will not apply to CRDs, however, the IRA owner still needs to make the federal and state withholding elections on the IRA Distribution Form.

Waiver of RMDs in, or for, 2020
The CARES Act also waives the required minimum distribution (RMD) in 2020 for plan participants, IRA owners, and beneficiaries. This means any RMDs you were required to take in 2020 have been waived.

Who does it apply to?
Anyone who had an RMD for 2020. This also includes individuals who were six months past their 70th birthday before January first and were supposed to take their first RMD. It’s important to note that the next RMD for those individuals must be taken by December 31, 2021.

How does this impact beneficiary distributions?
Usually there is a 5-year period for beneficiary distributions. As a result of COVID-19, 2020 has been effectively disregarded — and one additional year has been added to the remaining period. For example: for a death that occurred in 2019, the five-year period will now end on December 31, 2025, instead of December 31, 2024.

How does this impact rollovers?
Because of the waiver, any distributions taken in 2020 will not be considered an RMD. These distributions can be rolled over to another eligible retirement plan or to an IRA within 60-days of being taken. Similar to the CRDs, these distributions won’t be counted by employer plans as eligible rollover distributions for purposes of the 20 percent mandatory withholding, the 402(f) notice, or the direct rollover requirements.

If you took a distribution after January 1, 2020 and have exceeded the 60-day window for rollovers, the IRS hasn’t issued guidance yet. We will add this information as it becomes available.

Please note: you must notify our team if you are taking a Coronavirus Related Distribution from your IRA, so this is accurately recorded on your IRA distribution form.