April 3, 2020
CARES Act Update
We recently shared how we’re supporting your business during these challenging times with new processes and resources. Now there is additional relief for your clients with the Coronavirus Aid, Relief and Economic Security (CARES) Act.
The CARES Act was signed into law on March 27, 2020. While most of the Act is focused on economic stimulus, below is information on how the Act eases requirements for your annuity clients.
Waiver of 2020 RMDs
All required minimum distributions (RMDs) are waived for the 2020 tax year. This waiver includes 2020 RMDs from inherited IRAs. For clients who turned 70.5 in 2019, the waiver also includes RMDs that were due by April 1, 2020 and not taken in 2019.
Clients receiving RMDs through systematic payments will receive their 2020 RMD as planned, unless they request otherwise. They will receive a letter with this information.
If your clients already received their RMD for 2020, they may return it to us by April 30, and we will reverse the withdrawal. However, unless the IRS announces a more generous rule in the future, we cannot accept back an RMD from an inherited IRA.
Special treatment for coronavirus-related distributions
The Act includes the following provisions for coronavirus-related distributions taken from an employer plan or IRA.
- 10% tax penalty for taking a distribution before age 59.5 is waived.
- 20% mandatory federal income tax withholding for employer plans is waived.
- Income tax on the distribution may be paid over a three-year period. Note the full distribution amount will be reported on 1099s for 2020.
- Distributions may be rolled back into the employer plan or IRA within three years. Please note, the annuity contract’s purchase payment requirements/restrictions will apply.
- Distributions are limited to an aggregate amount of $100,000.
- Employer plans may be amended to add an exception to the distribution restrictions to allow such withdrawals.
- Any early withdrawal charges and market value adjustments will apply.
To qualify as a coronavirus-related distribution, the distribution must be qualified funds from an employer plan or IRA to a person who: is diagnosed with the virus, has a spouse or dependent diagnosed with the virus or has lost income on account of the virus.
The provisions do not apply to non-qualified contracts or inherited non-qualified contracts.
Special loan rules
From now through September 23, 2020, an employer plan may be amended to increase the maximum loan to a qualified borrower to the lesser of $100,000 or 100% of the vested account value. Additionally, an employer plan may be amended to allow for a one-year delay for any loan payments by a qualified borrower due between March 27 and December 31, 2020.
A qualified borrower is a plan participant who: is diagnosed with the virus, has a spouse or dependent diagnosed with the virus or has lost income on account of the virus.
Please note, the annuity contract loan limits will continue to apply. Not all contracts allow loans. When permitted, a loan from a fixed and fixed-indexed contract is generally limited to the surrender value reduced by $500 and loan interest for the coming year.
We are in the process of updating forms and procedures to comply with the CARES Act.
We are here to support you during these unprecedented and ever-changing times. Thank you for choosing Great American!
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