Estate Planning, Retirement Plans & The CARES Act (Part 2): COVID-19 Related Planning Opportunities

In addition to the suspension of required minimum distributions (RMDs) for 2020 available to retirement account owners as a result of the federal CARES Act that we discussed in our last post, this COVID-19 relief legislation also provided some additional relief efforts to help retirement account owners. First, retirement plan owners who were directly affected by the COVID-19 pandemic may take an IRA distribution this year of up to $100,000 and spread the income tax on that distribution out over 3 years (2020, 2021 and 2022). Also, if you are under 59.5 years of age and impacted by the COVID-19 pandemic, you can avoid the 10% penalty on early withdrawals. These relief provisions have created some interesting, albeit aggressive tax planning opportunities with IRAs. One possible, but aggressive strategy, is for an IRA owner to do a Roth IRA conversion and spread the income tax cost of the converted amount (up to $100,000) over 3 years. Another aggressive strategy is for an IRA owner directly impacted by the COVID-19 pandemic to make a deductible IRA contribution in 2020, then take a taxable distribution from the IRA this year. The deduction for the contribution is taken in 2020, but the taxes on the distribution can be spread out over 3 years. Although these strategies appear to comply with the CARES Act provisions, whether or not Congress intended to allow such strategies as part of this COVID-19 relief legislation has been a matter of some debate, and future IRS guidance on these strategies may be forthcoming. To learn more on how the CARES Act may impact your estate and retirement plan planning, please contact us today.

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