The CARES Act and your investment accounts

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On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law. This expansive legislation has wide-ranging implications. Changes to tax rules applicable to retirement plans and accounts comprise a significant component of the CARES Act. The information below highlights key provisions in addition to how we are supporting our clients with the relief. This information is subject to change as we receive further guidance from the IRS.
The CARES Act includes provisions for employer-sponsored qualified retirement plans and IRAs that:
  • permit an additional withdrawal of up to $100,000 for coronavirus-related distributions (CRDs),
  • for plans, permit an increase in the available loan amount to the lesser of 100% of a participant's vested account balance or $100,000 and provide relief from loan repayments, and
  • waive required minimum distributions (RMDs) for 2020 and 2019 RMDs, taken after 1/1/2020 that were required to be taken by April 1, 2020.
Each of these provisions is explained in detail below. Note that Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. Clients should consult their legal and/or tax advisors before making any financial decisions.

1. Tax-favored coronavirus-related distributions (CRDs) from qualified retirement plans and IRAs

Withdrawals of up to $100,000 (in the aggregate) from qualified retirement plans (that choose to permit them) and IRAs during 2020 for coronavirus-related purposes may receive special tax treatment.
  • Clients under age 59½ can withdraw up to $100,000 from specified qualified retirement plans and IRAs during 2020 without a 10% early withdrawal additional federal income tax, if the individual meets coronavirus-related eligibility requirements (see below).
  • The 20% mandatory federal income tax withholding is waived for coronavirus-related distributions (CRDs) from qualified retirement plans.
  • Unless you elect otherwise, CRDs will be included in your income for federal income tax purposes ratably over 3 years. Note that state and local income taxes may not be subject to this delayed tax treatment. Consult your tax advisor for more information on your personal circumstances.
  • CRDs may be repaid to a qualified retirement plan in which you participate or an IRA at any time during the 3-year period beginning on the day after the date on which the distribution was received, and those repayments will be treated as a tax-free rollover, without regard to any contribution cap. We anticipate guidance regarding the timing of payments of federal income taxes and recharacterization of previously paid taxable amounts in the event all or a portion of a CRD is repaid during such 3-year period.
Eligibility: You are eligible for a CRD if you certify that you, your spouse or dependent is diagnosed with COVID-19 (or SARS-CoV-2) or you experience certain adverse financial consequences as a result of (i) being quarantined, furloughed or laid off or having to work reduced hours because of the virus (or disease), (ii) being unable to work due to lack of child care because of the virus (or disease), (iii) closing or reducing hours of a business owned or operated by you due to the virus (or disease), or (iv) other factors as determined by the U.S. Department of Treasury.
What does this mean for me?
If you take a CRD in 2020, you may be required to report this withdrawal when you file your federal income tax return for 2020. You should consult your tax advisor on your personal situation.

2. Waiver of required minimum distributions

Under the CARES Act, all 2020 RMDs have been waived. There are no coronavirus-related eligibility requirements with this change.
  • 2019 RMDs, taken on or after January 1, 2020 that were required to be taken by April 1, 2020, are also waived.
  • Distributions received as RMDs on or after February 1, 2020, and on or before May 15, 2020 may be eligible for rollover on or before July 15, 2020 subject to the rollover rule referenced below. Prior to February 1, 2020 and after May 15, 2020, the 60 day timeframe for rollovers will apply, unless additional guidance is provided.
    • Under current rules, there can only be one rollover across all IRA account types within a rolling 365 day period. Inherited IRA distributions are not eligible for rollover. If you have any questions on this, you should consult with your tax advisor.
  • Should you wish to receive the amount that would have been your RMD (or another amount), you may still take the RMD.
What does this mean for me?
If you have not taken your RMD yet, and you have the RMD Service set up to automatically distribute your RMD, and you do not wish receive the automatic distribution(s), you'll need to contact us to update the RMD Service distribution date.

3. Loans from qualified retirement plans (coronavirus-related loans)

The CARES Act has two optional relief provisions for qualified retirement plans that offer loans. If a plan chooses to add these optional provisions, participants must first certify that they meet the coronavirus eligibility guidelines, which are the same as for CRDs (described above).
Currently the limit for loans from a qualified retirement plan is 50% of a participant's vested account balance or $50,000, whichever is less. Under the CARES Act, plans that choose to take advantage of the expanded loan limitations may allow for loans up to 100% of a participant's vested account balance or $100,000, whichever is less. This is a temporary provision and is only permitted for loans that are made during the 180-day period beginning on the date of enactment, which was March 27, 2020.
Qualified retirement plans can also choose to offer a one-year suspension on loan repayments due between March 27 and December 31, 2020.
What does this mean for me?
If you participate in a qualified retirement plan that offers loans and you are interested in a coronoavirus-related loan or delaying repayments on an existing loan, contact your plan sponsor for more information on whether these provisions will be available to you.

4. Paycheck Protection Program for small businesses

Small businesses may be eligible for financial relief, including the loan program called the Paycheck Protection Program.
Merrill clients who have a Working Capital Management Account (WCMA) or Business Investment Account (BIA) opened no later than Feb. 15, 2020 and do not have a credit or borrowing relationship with Bank of America or another bank may be eligible to apply through Merrill. Only clients with WCMA or BIA brokerage accounts are eligible. Accounts that are enrolled in a Merrill investment advisory program, such as Merrill Guided Investing, Merrill Guided Investing with Advisor, Merrill Edge Advisory Account, and the Merrill Lynch Investment Advisory Program (each an "Advisory Program"), are also not eligible to participate in the Paycheck Protection Program through us at this time. Clients with both a WCMA or BIA brokerage account and another Advisory Program account may participate in the Paycheck Protection Program through their brokerage account.
For more information, log in to your Merrill WCMA or BIA account and review the Paycheck Protection Program overview page.
Note: if you have a small business banking account at Bank of America, you should apply through the small business online banking (SBOB) portal.

5. Tax filing and retirement contribution extension

In addition to the CARES Act provisions, the IRS has postponed the traditional April 15 federal income tax filing and payment deadline by three months to July 15. "During the three-month postponement, taxpayers won't be subject to interest or penalties for filing after April 15," says Mitchell Drossman, National Director of Wealth Planning Strategies for the Chief Investment Office of Merrill and Bank of America Private Bank.
The IRS has also provided guidance regarding the delayed deadline for deposit of IRA contributions for the 2019 tax year. "Contributions can be made to your IRA, for a particular year, at any time during the year or by the due date for filing your return for that year. Because the due date for filing Federal income tax returns has been postponed to July 15, the deadline for making contributions to your IRA for 2019 is also extended to July 15, 2020."Footnote 1
The IRS continues to issue guidance on taxpayer relief, so please check with the IRS's Filing and Payment Deadlines Q&A site for the very latest information. As always, it's best to consult your tax advisor for guidance on what the tax extension might mean for you.

6. 529 re-contribution guidelines

Generally, if a client receives a refund from an educational institution, the client has the ability to re-contribute the refunded amount to the 529 account within 60 days of the date the client received the refund. However, under the temporary IRS extension, if that 60-day period ends on or after April 1, 2020 and before July 15, 2020, then the re-contribution can be completed any time before the later of July 15, 2020 or the 60th day after the date of the refund.
For example, if a client made a tuition payment on January 1, 2020, and received a refund check on April 1, 2020, the 60-day period would end on June 1, 2020. However, under the temporary extension, the client would have until July 15, 2020, to recontribute the funds to their 529 account.
Next steps
  • If you have any questions or need help, please contact us
  • Read more about other provisions included in the legislation in the CARES Act Tax Alert (PDF), including:
  • Provisions affecting individuals:
    • Rebates for individuals
    • Charitable Contribution Deductions
    • Temporary Relief for Federal Student Loan Borrowers
    • Employers can pay employees' student loans
  • Provisions affecting businesses:
    • Employee Retention Tax Credit
    • Delay of Payment of Payroll Taxes
    • Net Operating Losses Modification
    • Increase in Limit on Business Interest Expense
    • Charitable Deduction Limitation Increased
    • Other: Technical Correction of Tax Reform 2017
  • Visit the Bank of America Coronavirus Resource Center

Footnote 1, Q17. Note that the IRS FAQ site cautions that the answers are not citable as legal authority.

Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.
Opinions are those of the author(s) and are subject to change.

The Chief Investment Office, which provides investment strategies, due diligence, portfolio construction guidance and wealth management solutions for Global Wealth & Investment Management ("GWIM") clients, is part of the Investment Solutions Group ("ISG") of GWIM, a division of Bank of America Corporation.