COVID-19 Relief Continues with Passage of CARES Act

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The Coronavirus Aid, Relief and Economic Security Act (“CARES Act”), a $2 trillion dollar stimulus package designed to offer financial flexibility to a nation of taxpayers in the throes of the COVID-19 pandemic, was signed into law on Friday, March 27. The CARES Act introduces new tactics to build upon a series of measures that have been introduced since the health crisis began.

To date, the U.S. government has moved the tax filing deadline to July 15, bringing the 2019 contribution deadline with it. With Friday’s passage of the stimulus package, self-directed investors are further impacted in the following ways:

  • 2020 required minimum distributions waived – An account holder who would otherwise need to take a required minimum distribution (“RMD”) this year needn’t take one in 2020. Under normal circumstances, anyone age 72 or older who holds a Traditional IRA, 401(k), or another such pre-tax plan would be subject to annual RMDs.

  • 10% penalty on early distributions for COVID-19 expenses waived – An early distribution would generally incur taxes and an additional 10% penalty, unless said distribution qualifies as a “hardship” distribution. Expenses related to COVID-19 (which include indirect expenses such as loss of income) fall under the hardship category by virtue of the CARES Act, meaning an early distribution of up to $100,000 for this purpose would not subject the account holder to the 10% penalty.
    • Those who keep the distribution(s) can pay the applicable taxes over the next three years, or
    • Account holders can re-contribute the distributed balance over the next three years to avoid the tax burden.

  • 401(k) loan provision doubled401(k)s uniquely allow their holders to borrow money from and eventually repay their accounts. 401(k) holders may now borrow up to $100,000 under the CARES Act, which is double the standard limit of $50,000.

New Direction Trust Company is committed to serving the ongoing—and evolving—needs of your investment goals and of your self-directed IRAs, HSAs, and 401(k)s. We will continue to monitor any additional changes that are implemented as a result of COVID-19.

Please don’t hesitate to give us a call at 877-742-1270 or send us an e-mail at info@ndtco.com.

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