Covid-19 Resources and Frequently Asked Questions

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CARES Act - Frequently Asked Questions

While the COVID-19 outbreak has cast a lot of uncertainty across the market, the Coronavirus Aid, Relief and Economic Security (CARES) Act passed March 27, 2020, will provide an estimated $2 trillion in fiscal stimulus in an effort to help boost the economy.

Below, you will find answers to frequently asked questions related to the CARES Act that could impact you. The first section covers the waiver of RMDs, the second section covers coronavirus-related distributions and the third section covers additional tax information.

Please note: None of the CARES Act changes apply to non-qualified accounts (i.e. annuities that are not held in an individual retirement account (IRA)). 

Updated Guidance
The Internal Revenue Service (IRS) released additional guidance in regard to the CARES Act in Notice 2020-50 and Notice 2020-51. The following information has been updated to reflect the additional guidance provided in the two notices.

Waiver of RMDs

What are required minimum distributions (RMDs)?

RMDs are the minimum amount the Internal Revenue Service (IRS) requires an individual to distribute from their IRA account each year, once they attain a specific age. If you were born June 30, 1949, or earlier, you were required to begin taking RMDs when you reached age 70 ½. If you were born July 1, 1949, or later, you are required to begin taking RMDs when you reach age 72.

How will the waiver of RMDs impact me?

Based on the current guidelines, the following RMDs will not need to be taken this year:

  • 2020 RMDs
  • 2019 RMDs, if it was taken between Jan. 1, 2020 and Apr. 1, 2020. Note: If a 2019 RMD was taken between Jan. 1 and Dec. 31, 2019, that RMD is not eligible to be returned as an indirect rollover
  • 2020 inherited RMDs (i.e. stretch payments)
It is our understanding, the RMDs that are being waived will not need to be made up at a future date.
What are my options if I’ve already taken my RMD in 2020 and I want to return it?

Depending on when you took your RMD, you may be able to return this money as an indirect rollover.

  • If a RMD was taken between Jan. 1 and July 2, it can be returned by Aug. 31 to qualify as an indirect rollover.
  • If a RMD is taken July 3 or later, it can be returned within 60 days of distribution as an indirect rollover. 
  • If a RMD was taken from an inherited IRA, please see the following FAQ for available options to return your inherited RMD (i.e. stretch payment).

If you are taking your RMD in installments throughout the year (quarterly, monthly, etc.), you can return multiple distributions as one indirect rollover. If you wish to defer future 2020 payments, please contact our office at (888) 221-1234.

It is our understanding, the RMDs that are being waived will not need to be made up at a future date.

If I own an inherited IRA and I’m required to take an inherited RMD (i.e. stretch payment), is that waived for 2020?

Yes, your inherited RMD is waived for 2020. Depending on when you took your RMD, you may be able to return this money as an indirect rollover.

IRAs and Spouse Inherited IRAs

  • If a RMD was taken between Jan. 1 and July 2, it can be returned by Aug. 31 as an indirect rollover.
  • If a RMD is taken July 3 or later, it can be returned within 60 days of distribution as an indirect rollover.

Non-Spouse Inherited IRAs

  • RMDs can be returned until Aug. 31, 2020 as an indirect rollover.
  • RMDs can not be returned Sep. 1, 2020 or later.

If you are taking your RMD in installments throughout the year (quarterly, monthly, etc.), you can return multiple distributions as one indirect rollover. If you wish to defer future 2020 payments, please contact our office at (888) 221-1234.

It is our understanding, the RMDs that are being waived will not need to be made up at a future date. 

If I elected to defer payment of a death benefit for either 5 or 10 years, how does the CARES Act impact me?

The five-year deferral is now extended to a six-year deferral for deferred accounts issued in 2020 or earlier. This will not apply to deferred accounts issued 2021 and later.

No action is needed on your part to extend the five-year deferral to a six-year deferral. American Equity will automatically extend this for you.

The 10-year deferral newly available to beneficiaries in 2020 is unchanged.

What can I do if I had taxes withheld from the RMD I already took and I would like to return the funds?

The IRS does not allow us to reverse the tax withheld on returned RMDs. In general, the IRS gives you two options:

1. Return the amount you received as an indirect rollover

2. Return the amount you received as an indirect rollover and contribute the difference (tax withheld) out of pocket

Below is a hypothetical example to illustrate these options:

You took a $5,000 RMD, withheld $500 in taxes and received $4,500 in your pocket.

Option 1: You can return the $4,500 you received as an indirect rollover. The net remaining amount, $500, will be reported as taxable income, and $500 will also be reported as tax withheld on your 2020 personal income tax return.

Option 2: You can return $5,000 in total as an indirect rollover, which includes the $4,500 you received, and $500 out of pocket. No amount will be reported as taxable, and $500 will be reported as tax withheld on your 2020 personal income tax return.

In most cases, either of the above options are available. However, each individual’s tax situation is unique to them, and we encourage you to meet with your tax professional to understand how your personal income tax return will be impacted.

If I inherited an IRA in 2019, how am I impacted?

Generally, you as a beneficiary have until Dec. 31 of the year after the year the owner passed away to elect the inherited stretch option (i.e. if the owner passed in 2019, you normally had until Dec. 31, 2020 to make an election).

For you as a beneficiary who inherited IRA funds from an owner that passed away in 2019, you are allowed to make the election up until Dec. 31, 2021. Note: This exception is specific, and only applies if the owner passed away in 2019 and only applies to IRA funds.

We encourage you to share this information with your tax professional and determine how it applies to you.

What 2020 tax forms can I expect to receive if I return my RMD as an indirect rollover?

If you return your RMD as an indirect rollover you can expect to receive two tax forms for 2020 (mailed to you in 2021). You will receive a 2020 Form 1099-R reporting the RMD taken. In addition, you will receive a 2020 Form 5498 reporting the amount returned as an indirect rollover.

Below are two examples to illustrate reporting a 2020 Form 1099-R and Form 5498 if you choose to return funds as an indirect rollover.

You took a $5,000 RMD, withheld $500 in taxes and received $4,500 in your pocket.

Option 1: You choose to return the $4,500 you received as an indirect rollover. Your 2020 Form 1099-R will report the total $5,000 distributed and $500 in taxes withheld (this form does not change when you return funds). Your 2020 Form 5498 will report $4,500 as a rollover.

Option 2: You choose to return $5,000 in total as an indirect rollover, which includes the $4,500 you received, and $500 out of pocket. Your 2020 Form 1099-R will report the total $5,000 distributed and $500 in taxes withheld (this form does not change when you return funds). Your 2020 Form 5498 will report $5,000 as a rollover.

We encourage you to share this information with your tax professional to determine how this is reported and how it will impact your 2020 personal income tax return.

What other impacts does returning my RMD as indirect rollover have for me?

The IRS generally limits indirect rollovers to one rollover in any 365-day period, and the return of a RMD was considered in this limit (i.e. if you chose to return your RMD, the original CARES Act guidelines implied you could not perform another indirect rollover for the next 365 days). The return of a RMD (only RMDs waived under the CARES Act and additional guidance) is no longer considered when applying this limit.

We encourage you to share this information with your tax professional to determine how this is reported and how it will impact your personal income tax return.

 How can I return a RMD?

Certain RMDs have been waived under the CARES Act and Notice 2020-51. This has provided you with the option to keep the RMD you received, or return it. To return a RMD please contact us at (888) 221-1234.

If you are taking your RMD in installments throughout the year (quarterly, monthly, etc.), you can return multiple distributions as one indirect rollover. If you wish to defer future 2020 payments, please contact our office at (888) 221-1234.

It is our understanding, the RMDs that are being waived will not need to be made up at a future date. 

 How can I defer my scheduled 2020 RMD that I have not received yet?

The IRS has waived the 2020 RMD. This has provided you with the option to take the RMD as planned, take only a portion of your RMD, or defer your payment(s) all together to 2021. If you would like to change or defer your 2020 RMD payments, please contact us at (888) 221-1234.

If we do not hear from you, we will continue to make any payments to you based on the instructions we have on file.

It is our understanding, the RMDs that are being waived will not need to be made up at a future date.

Coronavirus-related Distributions (CRD)

 What is a Coronavirus-related Distribution (CRD)?

Qualified individuals at any age are able to take up to $100,000 in CRDs. The 10 percent early distribution tax is being waived for qualified individuals under age 59 ½ for CRD payments received. This is for distributions between Jan. 1, 2020, and Dec. 30, 2020. Normal contract provisions, including surrender and withdrawal charges, still apply.

Qualified individuals who can take a CRD include:

  1. Individuals diagnosed with COVID-19.
  2. Individuals who have a spouse or dependent diagnosed with COVID-19.
  3. Individuals (or spouse or a member of the individual’s household) who experience adverse financial consequences because of COVID-19, such as:
  • being quarantined 
  • being furloughed, laid off or having work hours reduced
  • inability to work because of lack of child care
  • closing or reducing hours of a business owned or operated by the individual
  • having a reduction in pay, a job offer rescinded or start date for a job delayed

Unless you elect not to, CRD payments will, by default, be taxed ratably over the next three years. We encourage you to consult with your tax professional on how CRD payments taken will impact your future personal income tax returns, and to determine if you qualify to take a CRD.

Please note: American Equity does not need to verify distributions are for coronavirus-related distributions. In addition, the CRD information above is an informational update only. There is not a unique way to report CRD payments on Form 1099-R, and you can expect CRD payments to be reported like any other distribution on Form 1099-R. 

Can I take a CRD if I am set up on 72t payments?

In general, the IRS treats a change in substantially equal periodic payments (i.e. 72t payments) as a violation and potentially exposes you to a 10% early distribution tax. However, the CARES Act and Notice 2020-50 do permit you to take a CRD even if you are set up on 72t payments. This specific transaction will not violate the 72t requirements. You do need to continue your 72t payments until age 59 1/2, or for five years, whichever is later.

 Can CRD payments be repaid to an IRA?

You may recontribute CRD payments over the next three years. The recontribution must be made during the three-year period beginning the day after the CRD payment was received. Recontributions may be made in one or multiple payments. The total amount of contributions may not exceed the total of CRD payments received.

CRD payments that are repaid will not be taxable. We encourage you to consult your tax professional to understand how this will impact your future personal income tax returns.

If you indicate you are repaying a CRD, American Equity will report this as a direct transfer. It is your responsibility to notify us if you intend a contribution to be a repayment of a CRD payment.

Additional Tax Information

 When is the deadline to make 2019 contribution to my IRA?

The IRS has extended the deadline to make 2019 contributions. 2019 contributions can be applied to a contract until July 15, if postmarked by that date.

 When can I expect to receive my 2019 Form 5498 from American Equity?

The IRS, at this time, has extended and provided the option to file and mail Form 5498s at a later date. American Equity continued to mail Form 5498s in May as in past years. If you contribute after the Form 5498s were mailed, American Equity will mail you a corrected Form 5498.

 

We hope you and your family are staying safe and healthy during these challenging times. Please know that we are here to support you.

This is an initial interpretation of changes related to the CARES Act. The IRS may release additional guidance to address other situations and questions. The information provided is not intended as legal or tax advice. If you are seeking advice on any updates or questions related to the CARES Act, we encourage you to consult with a qualified tax professional.

If you have questions, call (888) 221-1234.