You May Use Your IRA investment for COVID Relief
The economic and financial impact of the COVID-19 pandemic has been disruptive. In May 2020, the Congressional Budget Office reported the following key-points of the continuous state of uncertainty:
- The federal budget deficit of the year is 16% of the total GDP.
- The unemployment rate increased by 3.5% in February to 14.7% in April 2020.
- Employee-focused industries that include retail, food, leisure, entertainment, and education sectors experienced the highest job decline.
- Small businesses are hit harder than established firms due to less financial cushion.
- The unemployment rate isn’t expected to settle down until the year 2022.
US Government’s Response
The US Census Bureau conducted a survey in which more than 50% American population reported a loss of employment, 12% said food scarcity, 40% reported delay in the provision of medical facilities, and 26% were worried about their housing insecurity.
The government decided to curb the financial strain on the American population by introducing a relief package. On March 27th this year, the CARES Act was rolled out. The relief/stimulus package worth $2 trillion is designed to help businesses and citizens affected by the pandemic.
The relief package included three provisions that directly affect American retirement savings, especially their IRA investments. Let’s get to know how you can use your IRA assets to mitigate the financial risks in this unprecedented time.
Three Provisions That Are Related To Your IRA Investments
The act is dauntingly long but contains lots of good news for COVID-affected individuals and businesses. Here are the three-pointers marked for IRA owners:
- Penalty Exemption : The RMD requirements are uplifted for IRA distributions made in the year 2020. You must file an IRS Form 5329 with the tax return to identify a penalty exemption amount.
Distributions up to $100,000 made by account owners of age prior to 59.5 are subjected to a 10% excise tax. - Three-Year Spread : Distributions above $100,000 can be reported as income over three years. You have to file IRS Form 8915-E with tax return with the spread details.
- Repay or Roll Over : As an IRA owner, you can repay the full distribution amount anytime during the three years.
Requirements to Use Your IRA Investment Under the CARES Act
You’re eligible to use your IRA assets under the relief act if you meet the criteria mentioned below:
- If you were/are diagnosed with the coronavirus.
- If your spouse or dependent is diagnosed with the disease.
Moreover, the RMD rules apply if you’re facing one or more of the financial constraint due to the following factors:
- Quarantine
- Lay-off
- Business closure or reduced work hours
- Unable to work due to lack of childcare services
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