IRA Distribution Regulations that You Should Be Aware of – Impacts of the SECURE Act and COVID-19 CARES Act

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There are two sets of distribution regulations that you should be aware; the SECURE Act of 2019 and the temporary provisions for qualified situations related to COVID-19 under the CARES Act of 2020. These acts have made some adjustments to the rules governing IRAs. Most changes are favorable to account holders. The most significant change is the elimination of the Stretch IRA. This will throw a wrinkle in many estate plans. In this article we will discuss these changes and their impacts.

Let’s look at the SECURE Act provisions first

Generally age 59 ½ is the key number for distributions without penalties. Distributions from Traditional

IRAs are included as regular income so tax planning comes into play here. Money not withdrawn remains tax-deferred. Account holders do not have to take distributions at this age. Actually, money can remain tax-deferred until age 72 when Required Minimum Distributions (RMD) must begin. This is a change by the SECURE Act. Prior to 2020 the age was 70 ½. The IRS has established RMD tables of what must be withdrawn based on account value. The objective is that through RMDs the account value should reach zero at the end of life expectancy. There are provisions for a beneficiary IRA should the account holder pass away with an account value.

This is where things get tricky for estate planning. Prior to SECURE the beneficiary could stretch the inherited traditional IRA based on their life expectancy. Now the traditional IRA must be depleted by year 10 after the inheritance. There are exclusions. A spouse can still base withdrawals on life expectancy. As can certain other beneficiaries with special circumstances involving disabilities or a minor.

The problems begin in estate plan strategies when the traditional IRA beneficiary is a trust set up by the parent for a spendthrift adult child. Let’s say that under the trust, the payout to the trust beneficiary is to be based on life expectancy. At the time of the parent’s death let’s say the child is age 40.

Incremental amounts would drip out annually. But SECURE requires that it be depleted in year 10 meaning that a disproportionate amount would be distributed at age 50 skyrocketing their income and potentially pushing them into a higher tax bracket. Contact your estate planning attorney for their professional opinion before taking action.

Roth IRAs do not have RMDs. For qualified distributions the account holder must have satisfied the five year holding period and attained age 59 ½. Contributions, since they have been taxed can be withdrawn prior to 59 ½ without a penalty.

The penalty for premature distribution of either traditional or Roth is 10% of the withdrawn amount above any taxes due. There are provisions whereby money can be withdrawn penalty free prior to age 59 ½ from a Roth IRA; the disability or death of the account owner and up to $10,000 for the down payment on a primary residence for a first time home buyer.

Traditional IRAs have more provisions. In addition to the exclusions for a Roth, Traditional IRA provisions include medical expenses exceeding 10% of AGI, payment of medical insurance premiums during 12 weeks of continuous unemployment, qualified post-secondary education expenses, 72(t) distributions

which are a series of equal periodic payments according to IRS Rule 72(t) and for National Guardsmen during deployment.

COVID-19 and the CARES Act

Section 2202 of the CARES Act, signed into law in March 2020, created special provisions for withdrawals by people impacted by COVID-19. Qualified individuals are able to withdraw up to $100,000 with favorable tax treatment. The 10% premature withdrawal tax is waived. Taxes will still be due, but can be spread over three years in equal installments.

There is also a repayment provision that allows a qualified person to repay withdrawals within a three year period and file an amended return to recover taxes that they had already paid.

The IRS has not yet released guidance on this law. All the provisions are not clear nor is it clear how

Roth, SIMPLE & SEP IRAs will be treated. We can assume that SIMPLE and SEP IRAs will be treated like traditional IRAs.

For the purpose of Section 2202, the IRS defines a qualified individual as:

  • You are diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention;
  • Your spouse or dependent is diagnosed with SARS-CoV-2 or with COVID-19 by a test approved by the Centers for Disease Control and Prevention;
  • You experience adverse financial consequences as a result of being quarantined, being furloughed or laid off, or having work hours reduced due to SARS-CoV-2 or COVID-19;
  • You experience adverse financial consequences as a result of being unable to work due to lack of child care due to SARS-CoV-2 or COVID-19; or
  • You experience adverse financial consequences as a result of closing or reducing hours of a business that you own or operate due to SARS-CoV-2 or COVID-19.

Alternative IRA

An IRA is not a type of investment, it is a tax status of an investment or savings account. The IRA status dictates how taxes are treated but the account is comprised of investment securities, CDs or cash savings. The investment optionality depends on the custodian of the IRA account.  If you would like to learn more about IRA structures that give you full control over your assets or access to a broader range of investment options beyond stocks and bonds, visit us here.


There have been many changes in the past few years to the retirement plans, including those discussed here. The majority of these changes have been improvements for most people. It may be a good time to evaluate your own situation and take advantage of these plans, or explore other options. As with any financial matter consult your financial and tax advisors.

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