The Covid-19 outbreak has created health, social and economic repercussions impacting nearly every corner of American life, and financial advisors have witnessed first-hand many of the affects on their clients and their businesses.

But help is on the way in the form of legislative and regulatory relief, said Skip Schweiss, TD Ameritrade's managing director for advisor advocacy and industry affairs, in “Congress Sends a CARES Package: What the historic law means for investors,” a Wednesday webcast hosted by TD Ameritrade Institutional that focused first on the recently enacted Coronavirus Aid, Relief, And Economic Security Act (CARES Act).

Required Minimum Distributions
Jeffrey Levine, director of advance planning at Buckingham Wealth Partners, noted that the bipartisan legislation changes many of the rules surrounding retirement accounts, including those regarding required minimum distributions (RMDs).

“Every RMD is suspended with the exception of those from defined benefit plans,” said Levine. “That means first-timers (taking their first RMD) are suspended, too, all those RMDs are suspended this year.”

Levine said that the suspension of the 2020 RMD payment will not change the life expectancy tables used to calculate RMDs in subsequent years. The 5-year period for distributions from IRAs inherited by a non-designated beneficiary like a charity, trust or estate will become a six-year period thanks to the CARES Act, but the 10-year rule for distributions from IRAs inherited by designated beneficiaries remains unchanged – because by design, the rule, which as part of the 2019 SECURE Act replaced the stretch-IRA strategy, won’t impact inherited IRAs until 2021.

But what about those who  have already taken their 2020 RMDs?

“It’s not entirely clear,” said Levine. “There are three different ways you can consider utilizing existing rules to go about fixing that.” One, if it’s within 60 days of taking the RMD, the distribution can be put back into another retirement account as a 60-day rollover. Two, the IRS extended any deadlines that would have occurred within 60 days to April 1 –so advisors could use that rule to put any distribution occurring after Feb. 1 back into the account without having a taxable event.

“The third possibility is that you could  utilize a coronavirus-related distribution to fix this, but it’s a little  bit  more of a gray area so do it with a tax counsel or tax professional,” said Levine. Since retirement account owners have up to three years to repay any coronavirus-related distribution, if an RMD could also be described as a distribution needed because of the impact of the outbreak, “they may have up to three years to put that distribution back.”

But RMDs from inherited retirement accounts cannot be put back, said Levine, though Congress may include a provision for inherited accounts in future relief legislation.

Hardship Distributions
Levine also said that advisors should be careful with the advice they give on coronavirus-related distributions from retirement accounts. While the CARES Act permits account  holders to withdraw up to $100,000 from traditional retirement accounts in 2020, a coronvirus-related distribution has to be related to a health impact or financial hardship caused by the virus – infection, hospitalization, exposure and quarantine, furloughs, lay-offs and other work disruptions.

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