If you or your family have been impacted by the Coronavirus, you may be able to take advantage of tax favored access to your retirement accounts.  To be eligible, you must have been impacted by the virus and, in an employer-based retirement account, the employer must adopt the new COVID-19 rules.  Details can be found at:  https://www.finra.org/investors/insights/cares-act-2020-retirement-fund-access-and-student-loan-relief

Qualified individuals may withdraw from their retirement accounts, without the 10% penalty, up to the lesser of $100,000 or 100% of their retirement balance and spread the income tax on this distribution over three tax years. Because the new rules allow you to redeposit the distribution back to your retirement account within three years, in essence, it can become an interest-free loan.  It would require amending prior year tax returns in order to recoup the taxes paid on the original distribution.  Accountants are awaiting guidance on how the tax can be paid over this three-year period.

These same limits apply if the qualified individual would rather take a loan from their retirement accounts and pay it back over five years.  Utilizing the loan option also allows the borrower to suspend payments until March 2021 with no loan payments due in 2020; although, interest will accrue to the loan balance.  If suspension occurs, the borrower can reset the payback period beginning in 2021 over five years.  For those that lose their job during the loan term, the plan custodian (not the employer) will most likely allow the borrower to keep the loan in place and not have it deemed a taxable distribution. Don’t try to rollover the employer plan to an IRA as this could cause the loan to become taxable. 

Both of these new, short-term provisions, are designed to help families weather the financial impact of this pandemic.

One last provision of this legislation is all Required Minimum Distributions have been suspended for 2020. You don’t have to be adversely impacted by Coronavirus for this provision.  By not taking your required minimum distribution, you allow time for the retirement account to recover from the downturn in the stock market as well as not having to pay tax on the distribution.  For those who took RMD after February 1, 2020 they can roll back into their IRA those funds, as long as it is done by July 15, 2020.  For RMDs done in January, at this time, they cannot be rolled back into the IRA (stay tuned, the IRS could change this).  For those over age 70.5 who have used IRA distributions to gift to charities, this provision is still available for the amounts up to the required minimum distributions.

As with any tax-planning strategies, your accountant should be consulted.

We hope you and your families are healthy and well through these trying times.

Disclosure: Marshall Financial Group, Inc (“Marshall Financial”) is an SEC-registered investment adviser with its principal place of business in Doylestown, Pennsylvania.   This newsletter is limited to the dissemination of general information pertaining to Marshall Financial Group’s investment advisory services.  Investing involves risk, including risk of loss.

This newsletter contains certain forward‐looking statements (which may be signaled by words such as “believe,” “expect” or “anticipate”) which indicate future possibilities. Due to known and unknown risks, other uncertainties and factors, actual results may differ materially from the expectations portrayed in such forward‐looking statements. As such, there is no guarantee that the views and opinions expressed in this letter will come to pass.

For additional information about Marshall Financial, please request our disclosure brochure as set forth on Form ADV using the contact information set forth herein, or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov).  Please read the disclosure statement carefully.