Congress and the IRS have both been busy and, as a result, summer 2020 is shaping up to be an interesting one for taxpayers. First, Congress extended the tax filing deadline until July 15 this year, assuring that many accountants will be missing socially distanced July 4 celebrations. Second, the IRS recently issued IRS Notice 2020-51, which allows taxpayers who have taken required distributions from retirement accounts in 2020 to return those distributions by August 31, 2020. This article will outline what these changes mean for taxpayers.
The extended filing deadline is important for individuals who would like to contribute 2019 dollars to IRA accounts (traditional IRA or Roth IRA) or to health savings accounts (HSAs). Individual taxpayers may contribute up to $6,000 — $7,000 if you are aged 50 or older — to an IRA or Roth IRA account by the tax filing deadline each year. The maximum amount one may contribute to an HSA in 2019 is $3,500 for individual coverage or $7,000 for family coverage (provided you have a qualifying high deductible health plan). Because the filing deadline was pushed back three months, so too has the contribution date for these accounts.
IRS Notice 2020-51 clarifies a variety of provisions in the recently passed CARES Act, specifically those sections which relate to the suspension of 2020 required minimum distributions (RMDs) from retirement accounts. When the CARES Act was passed in March, it included provisions allowing some taxpayers 60 days to return distributions to these retirement accounts. The IRS subsequently indicated that those who took the distribution after February 1, 2020 would have until mid-July to return the funds and skip the 2020 required distribution. IRS Notice 2020-51 goes one step further, allowing anyone who took these required distributions (even in those who did so in January) to return them to their retirement accounts and forgo a required distribution for 2020.
Questions about whether to make IRA contributions or to bypass required distributions depend on a variety of factors including age, income, asset levels, and long-term objectives. Please contact our planning team if you’d like help determining whether your family should act on these midsummer tax deadlines.