CARES-ACT

[PS]

Hi, 

I have questions related to CARES-ACT. 

• As per the act eligible participant will be able to withdraw up to $100,000 now if a plan is Terminating and the participant has only $50,000 can the participant withdrawal the complete amount under the CARES-ACT? or does it have any anything specific related to Terminating plan and withdrawal option.  
• As we know the CARES-ACT also talks about RMD, if a participant has received his/her 1st RMD check post the Bill was passed can the person return the check back and deposit into the 401K plan? since the plan is Terminating and the participant will need to take a distribution can the person PUT back the money into the plan and then have it rolled over.  
• Does the RMD apply to anyone who has reached 70 Plus or only the eligible participants as per the bill.

Is there anything that I can refer how the CARES-ACT will apply for plans that are Terminating? any portal/website? 

Thank you and stay safe...

[Larry Starr]

2 hours ago, Pri said:

Hi, 

I have questions related to CARES-ACT. 

• As per the act eligible participant will be able to withdraw up to $100,000 now if a plan is Terminating and the participant has only $50,000 can the participant withdrawal the complete amount under the CARES-ACT? or does it have any anything specific related to Terminating plan and withdrawal option.  
• As we know the CARES-ACT also talks about RMD, if a participant has received his/her 1st RMD check post the Bill was passed can the person return the check back and deposit into the 401K plan? since the plan is Terminating and the participant will need to take a distribution can the person PUT back the money into the plan and then have it rolled over.  
• Does the RMD apply to anyone who has reached 70 Plus or only the eligible participants as per the bill.

Is there anything that I can refer how the CARES-ACT will apply for plans that are Terminating? any portal/website? 

Thank you and stay safe...

If the plan  is allowing for the payout, it can be a CVD (Corona Virus Distribution) regardless of the reason.  

As to the distribution taken, treat it as a CVD and  it can be put back (there is that 3 year rule that now applies to his distribution). It can't be an RMD because those (legally) don't exist for 2020.

I don't understand your third question.  There are no RMDs this year AND the rule is now 72; what are you asking?

[PS]

Thank you Larry.

so what I understand is if a participant is having $50,000 he/she will be able to with draw the complete amount if the plan has opted for CVD.  however my follow up trailing question is will the person be able to PUT back this money into another qualified 401K plans or IRA account since we are dealing with terminating plans.  

My last question was in case some one had received a MRD check for 2020 can they return the check and put back the money into the plan though the plan will be terminating and ultimately the person will require to rollover the funds/take distribution. 

[Larry Starr]

41 minutes ago, Pri said:

Thank you Larry.

so what I understand is if a participant is having $50,000 he/she will be able to with draw the complete amount if the plan has opted for CVD.  however my follow up trailing question is will the person be able to PUT back this money into another qualified 401K plans or IRA account since we are dealing with terminating plans.  

My last question was in case some one had received a MRD check for 2020 can they return the check and put back the money into the plan though the plan will be terminating and ultimately the person will require to rollover the funds/take distribution. 

Trailing question answer: yes.  ANY plan is allowed for repaying the distribution, including IRAs.

Last question: if it's a CVD distribution, then yes, they can put it back if the plan allows rollover contributions. Or they can put it in another plan (like a personal IRA).  

[PS]

Thank you once again.

So regarding the MRD or RMD the participant can not return the MRD check that he/she received  back into the Terminating plan and then take a withdrawal reason being this was not a CVD distribution, though the ACT allows participants to skip the MRD for 2020 correct? another trailing question to MRD is can anyone who is 72 plus can skip the MRD for 2020 or are there any rules/condition that 10 Plan should have opted for CARES- ACT and the individual was victim due to COVID-19 pandemic. 

Its a very sensitive time and I'm trying my best to provide proper assistance, any guideline would be of great help. 

Thanks

 

[RatherBeGolfing]

30 minutes ago, Pri said:

So regarding the MRD or RMD the participant can not return the MRD check that he/she received  back into the Terminating plan and then take a withdrawal reason being this was not a CVD distribution

No.  Any distribution in 2020 is a CRD if made from an eligible plan to a qualified individual, including the RMD you describe.  In your example, it is a 2020 distribution from a 401(k) plan, correct?  In that case, it is a CRD if the participant is a qualified individual, and can be paid back to any plan or IRA that accepts rollover contributions.  If the original plan accepts rollovers, it can go back to that plan.  Since it is terminating, it is possible that it will not accept a rollover.

35 minutes ago, Pri said:

another trailing question to MRD is can anyone who is 72 plus can skip the MRD for 2020 or are there any rules/condition that 10 Plan should have opted for CARES- ACT and the individual was victim due to COVID-19 pandemic. 

Short answer is that RMDs are waived for all plans (except defined benefit plans) for 2020.  It is simply not required by law.  You do not have to be a qualified individual or be affected by the virus in any way. 

The longer answer is that some plans may still require a distribution based on the plan document language, even if it is not required by law for 2020.  These plans will be the minority though, so chances are that your plan will not require an RMD.

[PS]

The original plan(is the same Terminating plan) does accept rollover, so I believe this can be put back as a rollover however how will the taxes be handled since the taxes were deducted for the MRD check that was issued should the tax be corrected or the participant will have three years time to repay the taxes? 

Also when you say any distribution made in 2020 is a CRD to a qualified individual, I suppose it is any eligible individuals as per the plan for example a Terminated participants, retire, beneficiary etc and these individuals needs not be particularly affected by the virus.  Hope I've got it right...

Thanks You..

[Larry Starr]

6 hours ago, Pri said:

The original plan(is the same Terminating plan) does accept rollover, so I believe this can be put back as a rollover however how will the taxes be handled since the taxes were deducted for the MRD check that was issued should the tax be corrected or the participant will have three years time to repay the taxes? 

Also when you say any distribution made in 2020 is a CRD to a qualified individual, I suppose it is any eligible individuals as per the plan for example a Terminated participants, retire, beneficiary etc and these individuals needs not be particularly affected by the virus.  Hope I've got it right...

Thanks You..

The taxes are gone; the feds have them and will keep them until a personal tax return is filed and the true up of taxes owed or to be refunded is determined.

However, he can return 1) part of the distribution (the 80% he still has) or 2) 100% IF he can come up with the other 20% from his pocket. And, he could use up to the 3 years to come up with that other 20%.  If he ends up with a taxable amount (effectively, the tax would be on the 20% not returned in the first year), he could split it over 3 years and still pay it back before the 3 years are over and that would eliminate the tax retroactively and most likely require filing amended returns to get the money back.

[PS]

Thanks you.

Another client is Terminating the plan and are filing for 5310, they want to opt-in to the CARES Distribution option for their plan. However, they are concerned about the timing of the amendments. Because the CARES Act Amendment won’t be available until next year 2021, how should they address that amendment prior to their plan termination date which is Term date 03/31/2020.  Should the amendment be done first or is it fine proceed with a termination. 

 

[Larry Starr]

18 hours ago, Pri said:

Thanks you.

Another client is Terminating the plan and are filing for 5310, they want to opt-in to the CARES Distribution option for their plan. However, they are concerned about the timing of the amendments. Because the CARES Act Amendment won’t be available until next year 2021, how should they address that amendment prior to their plan termination date which is Term date 03/31/2020.  Should the amendment be done first or is it fine proceed with a termination. 

 

This is one that I wouldn't even bother with trying to answer.  We would not let a client do this; the plan TERMINATED as of last month and they want to add CRD's.  Nope. 

To quote Nancy Reagan: Just Say NO!

Now, I recognize that we seem to have more control over our clients than most, and for those of you who might have less control, you have my condolences!?  

[PS]

Thank you Larry.

Though the plan Terminated on 03/31/2020, the liquidation of assets is not done since they are waiting for their Fav letter and then allow distribution, so what I understand amendment will not be required. 

Thanks