To help provide relief from the impacts of the coronavirus, Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This Act gives each customer flexibility in planning for IRA distributions by changing requirements, extending deadlines and waiving penalties. Here are the top 3 things you should know about the CARES Act and your IRA.
1. Waived Required Minimum Distributions (RMDs)
Cancelling Your 2020 RMDs:
If you’d like to cancel your 2020 automatic distribution, please visit a CapFed® drive-thru branch. We are also mailing eligible IRA customers a notice. Simply return the bottom portion of the notice, in the included envelope, and we will cancel any future 2020 automatic distributions. The distribution will resume in 2021.
o The IRS has taken steps to allow individuals to rollover their RMD distributions.
o For those who have already taken their 2020 RMD and would like to rollover their distribution, you must determine if you are eligible. You are eligible if you can pass both of these requirements:
- Test 1: Timing – Your distribution must have occurred:
• Within the last 60 days, OR
• If your distribution occurred between February 1, 2020 and May 15, 2020, you have until July 15, 2020 to complete the rollover.
- Test 2: Once-per-year rule – IRS rules only allow you to complete one IRA-to-IRA rollover in a 365-day period. If you have completed another rollover in the last 365 days, you are ineligible to complete another rollover.
o For those who have already taken their 2020 RMD and would like to rollover their distribution, you must determine if you are eligible. You are eligible if you can pass both of these requirements:
- Test 1: Timing – Your distribution must have occurred:
• Within the last 60 days, OR
• If your distribution occurred between February 1, 2020 and May 15, 2020, you have until July 15, 2020 to complete the rollover.
- Test 2: Once-per-year rule – IRS rules only allow you to complete one IRA-to-IRA rollover in a 365-day period. If you have completed another rollover in the last 365 days, you are ineligible to complete another rollover.
• If you have taken your distribution within the last 60 days and are interested in a rollover, please seek tax advice from your tax preparer and contact us right away. You may visit your CapFed drive-thru branch or call us at 1-888-8CAPFED to start the rollover. We cannot reverse any tax withholdings that were withheld from the distribution, but it will be credited as a tax payment in your 2020 tax return.
Continue to Receive Your 2020 RMD:
• If you have your automatic distributions setup and would like for them to continue as-is, no action is needed. We’ll continue to send automatic distributions as they were scheduled. Please visit a drive-thru branch or call us anytime to request a distribution.
2. Contribution Deadline Extended for 2019
The 2019 contribution deadline was extended with the tax filing deadline to July 15, 2020. If you wish to make a 2019 contribution, please mail a check to us at:
Capitol Federal
Attn: IRA
700 S Kansas Ave.
Topeka KS 66603
On the check, please include the instructions to apply it as a 2019 contribution. We must receive the contribution by July 15, 2020, and contributions received after July 15th must be applied for tax year 2020 even if it was postmarked before July 15th. We will apply the contribution and return to you a contribution form for your signature. Please review it for accuracy, sign it, and return it to us. You may also visit one of our drive-thru branches to make a 2019 contribution. Our drive-thru hours have temporarily changed, so please visit capfed.com for more information. Be certain to tell the branch that the contribution is for 2019.
3. IRS Penalties Waived for Distributions
The IRS has waived the 10% penalty for distributions made to customers who are under age 59 ½. Normally, customers under age 59 ½ are subjected to a 10% penalty for distributions in addition to normal taxes. This 10 % penalty is waived for up to $100,000 in distributions because of coronavirus hardships. Additionally, you can spread the tax bill over three years and can payback the distribution into your IRA over the same three-year period.
Customers can request a distribution by visiting their CapFed drive-thru branch or by calling us at 1-888-8CAPFED. We will process the distribution as we would any other distribution. You do not have to provide documentation or proof of a hardship to the Bank. Additional information may need to be provided to the IRS to qualify for the penalty waiver.
As always, you should discuss the tax implications with your tax advisor before taking the distribution.
We appreciate your patience and cooperation as we work to conduct business in the quickest and safest way possible during these unique and difficult circumstances. If you should have any questions about your IRA account and the CARES Act, please call us at 1-888-8CAPFED (1-888-822-7333). If you’d like more information about the CARES Act, visit the Ascensus website.
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Joe Sims
Todd York