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COVID-19 & Your IRA: Here’s What You Need to Know

March 30, 2020

Bernie Kent



On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (CARES Act) was signed into law. This $2 trillion relief /stimulus package does many things to help individuals and businesses affected by the Coronavirus. There are three provisions which directly affect your Individual Retirement Account (IRA):

1.    Required Minimum Distributions (RMDs) for 2020 are not required,

2.   Distributions prior to age 59 1/2 of up to $100,000 are not subject to the 10% excise tax in 2020, and,

3.   Distributions of up to $100,000 this year can be reported as income over three years and/or repaid.

The suspension of the RMD rules applies to all taxpayers who are otherwise required to receive an RMD in 2020. The other two provisions apply only to IRA owners affected by a coronavirus. This is defined as a person:

who is diagnosed with coronavirus,

whose spouse or dependent is diagnosed with coronavirus,

who experiences adverse financial consequences as a result of:

  • being quarantined,
  • being furloughed or laid off,
  • having reduced hours,
  • being unable to work due to lack of childcare,
  • closing or reduced hours of a business owned or operated by the participant, or
  • any other factor determined by the Secretary of the Treasury.

Suspension of RMD requirement

The suspension of the RMD requirement applies to anyone who had attained the age of 70 1/2 before January 1, 2020. If you turned 70 1/2 last year and were waiting until March 31 to take your 2019 distribution, you are in luck. You are not required to take your 2019 RMD or your 2020 RMD. If you took your 2019 or 2020 RMD within the last 60 days, you are also in luck. You can rollover your distribution to the same or a different IRA within 60 days of the prior distribution and not pay the income tax on the withdrawal (as long as you have not made an IRA withdrawal within the 365 days preceding your distribution). Although inherited IRAs can take advantage of the RMD suspension for 2020, they are not eligible for the indirect rollovers within sixty days.

RMDs are calculated using the value of the IRA at the end of the prior year. With equity prices much lower than at year-end, taxpayers would potentially have to take out a larger percentage of the current value of their accounts and be forced to sell assets and pay tax on a larger percentage of their IRA. The purpose of a suspension of RMDs in 2020 is to provide relief for taxpayers whose IRAs have been adversely affected by market conditions, but it does apply without regard to the impact of the coronavirus on the taxpayer or the IRA.

Should you take advantage of the suspension of the RMD rules?

Clearly, if you have no other source of cash to satisfy your living expenses you will take what you need from the IRA. If you do not need to tap your IRA for living expenses, you will probably choose not to take the RMD in 2020.

If you do not take the RMD this year, it will increase the amount that remains in your IRA and that amount will be distributed over your lifetime (and that of your spouse) with final distribution within ten years of your death (or the death of your spouse).

Generally, it will be a better tax result to forgo the distribution and spread it out over many years. However, if you have not much taxable income other than the RMD, you may be better off taking an IRA distribution this year in order to take advantage of your deductions and lower tax bracket this year. You can fine-tune that amount to take the best tax advantage; it need not bear any relationship to the foregone RMD. The suspension of RMDs for 2020 may make a Roth IRA conversion more attractive this year.

Distributions of up to $100,000 from your IRA

The CARES Act allows any IRA owner, regardless of age, to take up to $100,000 from their IRA in 2020 and receive special treatment if they were affected by a coronavirus (as explained above).

The special treatment is that you can elect to report the distribution evenly over 2020, 2021, and 2022. Also, you will not have to pay the tax on the distribution if you choose to repay the distribution to an IRA or other eligible retirement plan within three years of the distribution. Finally, if you are under 59 1/2, you will not be subject to the ten percent excise tax on early withdrawals.

Should you take advantage of the special treatment for IRA distributions of up to $100,000?

If you need the funds, you should consider all sources for raising the funds, not just the IRA. It may be better to sell other investment assets and keep your IRA grow tax-deferred for many years. If you have no other source of funds, the IRA withdrawal makes sense. Finally, if you do not need the funds, you should not take advantage of this provision merely because you are eligible to use it. Leave your funds in your IRA to continue growing tax-free if you can. One exception would be where you have little or no other income this year. In that case, a withdrawal may come with little or no tax consequence and you can invest the funds in your taxable portfolio.

If you take money from your IRA under the CARES Act, should you report the income in 2020 or ratably over three years?

One advantage of the three-year election is the deferral of the time to pay tax with no interest charge. Reporting the full withdrawal as income in 2020 may put you into a higher tax bracket. Thirdly, if you choose to repay the distribution, you may be able to get back the tax paid quicker. For these three reasons, many taxpayers will choose to include the distribution in income over three years. However, if your 2020 income is much lower than what you expect to earn in 2021 and 2022, you may be better advised to report the entire distribution as income this year. You will have until October 15, 2021, to make this decision if you extend your return (though it may affect the tax you need to pay by April 15, 2021).


Each taxpayer’s facts are different so it is difficult to apply general rules. In addition, the future tax rates and earning rates cannot be forecast with any degree of accuracy. These factors create significant uncertainty as to whether acceleration or deferral of income from an IRA is the wisest choice.