Roadmap to Relief for IRA Owners and Providers | Lord Abbett
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Retirement Perspectives

Along with the retirement provisions in the CARES Act, IRA owners also have extended deadlines to make contributions and file taxes, while providers have more time to provide information to account owners.

Read time: 3 minutes
 

The Coronavirus Aid, Relief and Economic Security (CARES) Act, coupled with recent guidance from the Internal Revenue Service (IRS), provides much needed relief for owners and beneficiaries of retirement accounts in response to the COVID-19 pandemic.

We’ve covered the key provisions in the CARES Act, including:

The IRS then provided more details about the CARES Act retirement provisions in the form of 14 frequently asked questions that supplies guidance related to CRDs, plan loans, repayments and other relief.

In addition to the CARES Act, the IRS extended certain deadlines for IRA owners and beneficiaries due to COVID-19. IRS Notice 2020-23 announced that any taxpayer required to perform a “time-sensitive” act due on or after April 1, 2020 and before July 15, 2020 is entitled to an automatic extension to complete the act until July 15, 2020.

IRA Deadlines Extended to July 15, 2020

  • 2019 IRA Contribution – Deadline to make a 2019 traditional or Roth IRA contribution. Maximum annual contribution limit for 2019 is $6,000 ($7,000 for those individuals age 50 and older).
  • 2019 Health Savings Account ContributionDeadline to make a 2019 HSA contribution.
  • Initial Required Minimum Distribution (RMD) of April 1 2020 from a defined benefit plan or tax-exempt 457(b) plan. These plans do not qualify for the 2020 RMD waiver.
  • Deadline for Completing 60-Day IRA Rollovers –  Generally, an account owner is eligible to do one 60-day IRA rollover within a 12-month period (i.e. every 365 days, not calendar year). However, the deadline for rolling over distributions received from eligible retirement plans and IRAs on or after February 1, 2020 through May 15, 2020 is extended to July 15, 2020, as long as the IRA owner has not completed another 60-day rollover within a 12-month period. Furthermore, relief also apples to IRA owners who took distributions on or after February 1, 2020 through May 15, 2020 that would have otherwise been RMDs in 2020, but would not apply to IRA owners who received a distribution in January 2020. (Here’s more information about how to roll over an RMD.)
  • 120-Day Deadline to Buy a First Home. Generally, if you are under age 59½ and you take a distribution from your IRA, you will be assessed income taxes plus a 10% early distribution penalty tax unless an exception is satisfied. However, there is an exception for those who are looking to purchase their first home. The 10% penalty tax does not apply to an IRA distribution that’s used to buy or build a principal residence if you are a first-time homebuyer subject to a $10,000 lifetime limit.

    You must use the distribution within 120 days (not 60 days which the normal deadline for rolling over IRA distributions) from the day it is received to buy a first home. However, if the home purchase is delayed or cancelled, you can roll the funds back into an IRA.
  • Deadline to Repay Qualified Reservist Distributions to an IRA. Retirement plan distributions referred to as Qualified Reservist Distributions (QRDs) qualify for tax relief. The proceeds must be distribution from either an IRA or from dollars contribution as salary deferrals to a 401(k), or similar plan.

    Generally, if you are under age 59½ and take a distribution from your IRA, you will be assessed income taxes plus a 10% early distribution penalty tax unless an exception is satisfied. However, there is an exception to the 10% penalty tax for a QRD. Notably, you repay to a QRD within a two-year period after active duty is completed.
     

Extended deadlines for IRA Providers

On May 28, 2020, the IRS issued limited additional relief that extends deadlines for certain time-sensitive actions related to tax-advantaged savings arrangements. The relief offered by Notice 2020-35 is  because of COVID-19 and follows the relief provided by Notice 2020-18Notice 2020-20, and Notice 2020-23.

The new guidance in Notice 2020-35 further extends the July 15, 2020 deadline until August 31, 2020 for IRA trustees, custodians, and issuers to file Form 5498 (IRA Contribution Information) for 2019 with the IRS and provide a copy to IRA owners and beneficiaries. This extension also applies to Form 5498-ESA (Coverdell Contribution Information) and Form 5498-SA (Health Savings Accounts).

Deadlines for providing these information returns to IRS and owners had previously been extended by IRS Notice 2020-23 through July 15, 2020, in response to COVID-19. The deadline for annual contributions to these accounts was also extended to July 15, 2020.

If you have additional questions, please contact your Lord Abbett representative at 888-522-2388.

 

To comply with Treasury Department regulations, we inform you that, unless otherwise expressly indicated, any tax information contained herein is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties that may be imposed under the Internal Revenue Code or any other applicable tax law, or (ii) promoting, marketing, or recommending to another party any transaction, arrangement, or other matter.

The information is being provided for general educational purposes only and is not intended to provide legal or tax advice. You should consult your own legal or tax advisor for guidance on regulatory compliance matters. Any examples provided are for informational purposes only and are not intended to be reflective of actual results and are not indicative of any particular client situation.

The information provided is not directed at any investor or category of investors and is provided solely as general information about Lord Abbett's products and services and to otherwise provide general investment education. None of the information provided should be regarded as a suggestion to engage in or refrain from any investment-related course of action as neither Lord Abbett nor its affiliates are undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity. If you are an individual retirement investor, contact your financial advisor or other fiduciary about whether any given investment idea, strategy, product or service may be appropriate for your circumstances.

GLOSSARY

Traditional IRA contributions plus earnings, interest, dividends, and capital gains may compound tax-deferred until you withdraw them as retirement income. Amounts withdrawn from traditional IRA plans are generally included as taxable income in the year received and may be subject to 10% federal tax penalties if withdrawn prior to age 59½, unless an exception applies.

A Roth IRA is a tax-deferred and potentially tax-free savings plan available to all working individuals and their spouses who meet the IRS income requirements. Distributions, including accumulated earnings, may be made tax-free if the account has been held at least five years and the individual is at least 59½, or if any of the IRS exceptions apply. Contributions to a Roth IRA are not tax deductible, but withdrawals during retirement are generally tax-free.

A defined contribution plan is a retirement plan that's typically tax-deferred, e.g. a 401(k), at employers. An employee contributes a percentage of his/her paycheck in an account to fund retirement. The sponsor company will generally match a portion of employee contributions.

A required minimum distribution (RMD) is the minimum amount an account owner must withdraw from a retirement account each year. An owner generally has to start taking withdrawals from a retirement plan account at age 72. Roth IRAs do not require withdrawals until after the death of the owner.

A Health Savings Account (HSA) is a savings account that lets employees set aside money on a pretax basis to pay for qualified medical expenses.

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