Strategies for Clients Who Need Cash During the COVID-19 Pandemic

By Erica Eros | Case Planning – Qualified Plans

The COVID-19 pandemic has led to temporary changes to the IRA withdrawal rules. The Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed into law to help provide relief from the economic impacts of the pandemic. The CARES Act provides more flexibility to make emergency withdrawals from tax-deferred retirement accounts during 2020. The following strategies may help an IRA owner tap into retirement funds early, penalty-free.

Coronavirus-related distributions (CRDs)

Coronavirus-related distributions (CRDs) are a source of funds available for those who qualify. A CRD is a distribution of up to $100,000 from an IRA or company-sponsored retirement plan withdrawn in 2020 penalty-free. A distribution can be taken as a lump sum or in several distributions up to an accumulated total of $100,000. The funds are taxable, but the income can be spread over three years, and the funds can be repaid over that time to reduce or eliminate the tax burden.*

To qualify for a CRD, an IRA owner, a spouse, or a member of the IRA owner’s principal residence must have experienced one or more of the following:

  • A COVID-19 diagnosis, or whose spouse or dependent has been diagnosed with COVID-19.
  • Adverse financial consequences due to being quarantined, laid-off, furloughed, or whose work hours were reduced due to a COVID-19-related closure, work reduction, or child-care facility closure.
  • A job offer rescinded, or start date delayed, due to the pandemic.
  • A reduction of pay or self-employment income.

Once-per-year 60-day rollover rule temporarily waived

The CARES Act includes a waiver of the once-per-year 60-day rollover rule. This waiver may benefit a client who had begun taking monthly RMDs in 2020. The waiver allows an IRA owner to roll back the RMDs taken to date and redeposit them in the RMD source account until August 31, 2020. This waiver only applies to the amount of RMDs taken. Normal rules resume after August 31.

Roth IRA withdrawals – consider last as a source

Roth IRAs should be last on the list for withdrawing funds because these dollars have already been taxed and growth is tax-free. Once an IRA owner reaches age 59 ½ and has met the 5-year holding period threshold, money can be withdrawn tax-free. The dollars actually contributed to a Roth IRA can be withdrawn tax-free at any time and any age. This amount is the sum of deposits…it does not include earnings generated by depositsinterest income, dividends, and capital gains.

If you have any questions, please contact Erica Eros from SPS Family’s Case Planning – Qualified Plans Team by email at eeros@bdops.com.

*Note: Registered Representatives do not provide tax advice. Clients must be directed to seek the counsel of a CPA and/or tax advisor for advice specific to their situation.

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About SPS Family

The SPS Family consists of two broker-dealers, Sigma Financial Corporation and Parkland Securities, LLC; a Registered Investment Advisory firm, Sigma Planning Corporation; and a back office, known as BD Ops, LLC. The companies, based in Ann Arbor, Michigan, are under common ownership and led by an experienced executive team. The SPS Family prides itself on personal service to independent registered representatives and investment adviser representatives from across the United States. We consider our representatives family as we strive every day to provide them “Independence. DELIVERED.”

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