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Trump Extends Tax Filing Deadline; GOP Bill Eases Retirement Plan Withdrawals

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GOP lawmakers unveiled late Thursday their Phase 3 coronavirus response bill, The Coronavirus Economic Stabilization Act of 2020, which, among other measures, would allow for coronavirus-related distributions from retirement plans.

Meanwhile, President Donald Trump is ordering the Treasury to delay the deadline for filing federal taxes to July 15, according to a tweet Friday morning from Treasury Secretary Steven Mnuchin. (The GOP bill would also extend the deadline.)

Industry lobbying groups like the Insured Retirement Institute and the Investment Adviser Association are also asking lawmakers to institute a temporary waiver of required minimum distribution rules. Due to the significant decline in the stock market due to concerns over the COVID-19 pandemic, the groups said, “there is widespread concern” about individuals taking RMDs ”when there has not been enough time to recover losses.” The groups asked lawmakers to provide a temporary waiver for calendar year 2020 of the rules for RMD rules from defined contribution plans and IRAs.

A similar waiver was included in the Worker, Retiree, and Employer Recovery Act of 2008, the groups noted.

The CARES Act also directs the Treasury secretary to provide up to $208 billion in collateralized loans to American industries affected by the virus.

Of the $208 billion, $58 billion is allocated to facilitate liquidity in the airline sector, and an additional $150 billion is provided for the same purposes in other distressed sectors of the economy.

The legislation states that it does not provide grants to or bailouts for the airlines or other industries.

In comments on the Senate floor late Thursday, Senate Majority Leader Mitch McConnell said the CARES Act “takes bold action” to direct “financial health to the American people,” institutes “rapid relief” to small businesses and their employees “to stabilize the economy and protect jobs,” as well as provides “more support for our brave health care professionals and patients.”

According to the American Retirement Association, the CARES Act waives the 10% tax penalty on early withdrawals up to $100,000 from a retirement plan or IRA for an individual:

  • who is diagnosed with COVID-19;
  • whose spouse or dependent is diagnosed with COVID-19;
  • who experiences adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care due to COVID-19, closing or reducing hours of a business owned or operated by the individual due to COVID-19; or
  • other factors as determined by the Treasury secretary.

The CARES Act permits those individuals to pay tax on the income from the distribution “ratably over a three-year period and allows individuals to repay that amount tax-free back into the plan over the next three years,” ARA explains. “Those repayments would not be subject to the retirement plan contribution limits.”

As ARA explains, the CARES Act doubles the current retirement plan loan limits to the lesser of $100,000 or 100% of the participant’s vested account balance in the plan. Individuals with an outstanding loan from their plan with a repayment due from the date of enactment of the CARES Act through Dec. 31, 2020, can delay their loan repayment(s) for up to one year.

Retirement plans can adopt these rules immediately, ARA states, “even if the plan does not currently allow for hardship distributions or loans, provided the plan is amended on or before the last day of the first plan year beginning on or after Jan. 1, 2020, or later if prescribed by the Treasury secretary.”

Industry lobbying groups, including the Insured Retirement Institute and the Investment Adviser Association, also asked the GOP lawmakers to extend the IRA contribution deadline through July 15, 2020, “which corresponds with the extended deadline for tax payments.”

McConnell said that he hoped the CARES Act would find “similar bipartisan support” as the Families First Coronavirus Response Act, which was signed into law by President Donald Trump on Thursday and provides sick leave, expanded unemployment insurance and food assistance, and free testing for the virus.

Democrats, however, said Friday morning that the CARES Act is not “pro-worker.”

Senate Democratic leader Chuck Schumer, D-N.Y., and House Speaker Nancy Pelosi, D-Calif.,  said in a joint statement Friday that they “are beginning to review Senator McConnell’s proposal and on first reading, it is not at all pro-worker and instead puts corporations way ahead of workers.”

McConnell along with a group of his Republican colleagues will be in “urgent discussions” with Democratic lawmakers on Friday.

— Check out 12 Best States Fighting Coronavirus Right Now on ThinkAdvisor.