Covid-19 Resources and Frequently Asked Questions

A Message From Our CEO

 

CARES Act - Frequently Asked Questions

While the COVID-19 outbreak has cast a lot of uncertainty across the market, the Coronavirus Aid, Relief and Economic Security (CARES) Act passed March 27, 2020, will provide an estimated $2 trillion in fiscal stimulus in an effort to help boost the economy.

Below, you will find answers to frequently asked questions related to the CARES Act that could impact you. The first section covers the waiver of RMDs, the second section covers coronavirus-related distributions and the third section covers additional tax information.

Please note: none of the CARES Act changes apply to non-qualified accounts (i.e. annuities that are not held in an individual retirement account (IRA)). 

Waiver of RMDs

What are required minimum distributions (RMDs)?

RMDs are the minimum amount the Internal Revenue Service (IRS) requires an individual to distribute from their IRA account each year, once they attain a specific age. If you were born June 30, 1949, or earlier, you were required to begin taking RMDs when you reached age 70 ½. If you were born July 1, 1949, or later, you are required to begin taking RMDs when you reach age 72.

How will the waiver of RMDs impact me?

Based on current guidelines, 2020 RMDs will not need to be taken this year.

If you were required to begin taking RMDs in 2019 you would have had until April 1, 2020, to take your 2019 RMD. If you had not taken your 2019 RMD prior to Jan. 1, 2020, you are not required to do so. See below for information on returning RMDs.

It is our understanding, the RMDs that are being waived will not need to be made up at a future date.

What are my options if I’ve already taken my RMD in 2020, and I want to return it?

Depending on when you took your RMD, you may be able to return this money as an indirect rollover.

  • If an RMD was taken during January 2020, at this time, the IRS is not allowing these to be returned.
  • If an RMD is taken between Feb. 1 and May 15, it can be returned by July 15 to qualify as an indirect rollover.
  • If an RMD is taken May 16 or later, it can be returned within 60 days as an indirect rollover.

Please keep in mind, an individual can only put one* withdrawal back into an IRA as an indirect rollover. If you are taking your RMD in installments throughout the year (quarterly, monthly, etc.), you can return multiple distributions as one indirect rollover. If you wish to defer future 2020 payments, please contact our office at (866) 526-0995.

It is our understanding, the RMDs that are being waived will not need to be made up at a future date.

*Only one indirect rollover is allowed within a 365-day rolling period. 

If I own an inherited IRA, and I’m required to take an inherited RMD (i.e. stretch payment) is that waived for 2020?

If an RMD has already been taken, the IRS is not allowing non-spouse inherited RMDs to be returned.

Spouse inherited RMDs may be able to be returned, depending on when you took your RMD. Guidelines are provided below:

  • If an RMD was taken in January 2020, at this time the IRS is not allowing these to be returned.
  • If an RMD is taken between Feb. 1 and May 15, it can be returned by July 15 to qualify as an indirect rollover.
  • If an RMD is taken May 16 or later, it can be returned within 60 days as an indirect rollover.

Please keep in mind, an individual can only put one* withdrawal back into an IRA as an indirect rollover. If you are taking your RMD in installments throughout the year (quarterly, monthly, etc.), you can return multiple distributions as one indirect rollover. If you wish to defer future 2020 payments, please contact our office at (866) 526-0995.

It is our understanding, the RMDs that are being waived will not need to be made up at a future date.

*Only one indirect rollover is allowed within a 365-day rolling period. 

If I elected to defer payment of a death benefit for either 5 or 10 years, how does the CARES Act impact me?

The five-year deferral is now extended to a six-year deferral for deferred accounts issued in 2020 or earlier. This will not apply to deferred accounts issued 2021 and later.

No action is needed on your part to extend the 5-year deferral to a 6-year deferral. Eagle Life will automatically extend this for you.

The 10-year deferral newly available to beneficiaries in 2020 is unchanged.

What can I do if I had taxes withheld from the 2020 RMD I already took but would like to return?

The IRS does not allow us to reverse the tax withheld on returned RMDs. In general, the IRS gives you two options:

1. Return the amount you received as an indirect rollover

2. Return the amount you received as an indirect rollover and contribute the difference (tax withheld) out of pocket

Below is a hypothetical example to illustrate these options:

You took a $5,000 RMD, withheld $500 in taxes and received $4,500 in your pocket.

Option 1: You can return the $4,500 you received as an indirect rollover. The net remaining amount, $500, will be reported as taxable income, and $500 will also be reported as tax withheld on your 2020 personal income tax return.

Option 2: You can return $5,000 in total as an indirect rollover, which includes the $4,500 you received, and $500 out of pocket. No amount will be reported as taxable, and $500 will be reported as tax withheld on your 2020 personal income tax return.

In most cases, either of the above options are available. However, each individual’s tax situation is unique to them, and we encourage you to meet with your tax advisor to understand how your personal income tax return will be impacted.

What 2020 tax forms can I expect to receive if I return my RMD as an indirect rollover?

If you return your RMD as an indirect rollover you can expect to receive two tax forms for 2020 (mailed to you in 2021). You will receive a 2020 Form 1099-R reporting the RMD taken. In addition, you will receive a 2020 Form 5498 reporting the amount returned as an indirect rollover.

Below are two examples to illustrate reporting a 2020 Form 1099-R and Form 5498 if you choose to return funds as an indirect rollover.

You took a $5,000 RMD, withheld $500 in taxes and received $4,500 in your pocket.

Option 1: You choose to return the $4,500 you received as an indirect rollover. Your 2020 Form 1099-R will report the total $5,000 distributed and $500 in taxes withheld (this form does not change when you return funds). Your 2020 Form 5498 will report $4,500 as a rollover.

Option 2: You choose to return $5,000 in total as an indirect rollover, which includes the $4,500 you received, and $500 out of pocket. Your 2020 Form 1099-R will report the total $5,000 distributed and $500 in taxes withheld (this form does not change when you return funds). Your 2020 Form 5498 will report $5,000 as a rollover.

We encourage you to share this information with your tax professional to determine how this is reported and how it will impact your 2020 personal income tax return.

 How can I return an RMD?

The IRS has waived the 2020 RMD. This has provided you with the option to keep the RMD you received, or return it. To return an RMD please contact us at (866) 526-0995.

Please keep in mind, an individual can only put one* withdrawal back into an IRA as an indirect rollover. If you are taking your RMD in installments throughout the year (quarterly, monthly, etc.), you can return multiple distributions as one indirect rollover. If you wish to defer future 2020 payments, please contact our office at (866) 526-0995.

It is our understanding, the RMDs that are being waived will not need to be made up at a future date.

*Only one indirect rollover is allowed within a 365-day rolling period.

 How can I defer my scheduled 2020 RMD that I have not received yet?

The IRS has waived the 2020 RMD. This has provided you with the option to take the RMD as planned, take only a portion of your RMD, or defer your payment(s) all together to 2021. If you would like to change or defer you 2020 RMD payments, please contact us at (866) 526-0995.

If we do not hear from you, we will continue to make any payments to you based on the instructions we have on file.

It is our understanding, the RMDs that are being waived will not need to be made up at a future date.

Coronavirus-related Distributions (CRD)

 What is a Coronavirus-related Distribution (CRD)?

Qualified individuals at any age are able to take up to $100,000 in CRDs. The 10 percent early distribution tax is being waived for qualified individuals under age 59 ½ for CRD payments received. This is for distributions between Jan. 1, 2020, and Dec. 31, 2020. Normal contract provisions, including surrender and withdrawal charges, still apply.

Qualified individuals who can take a CRD include:

  1. Individuals diagnosed with COVID-19
  2. Individuals who have a spouse or dependent diagnosed with COVID-19
  3. Individuals who experience adverse financial consequences because of COVID-19, such as:
  • being quarantined 
  • being furloughed, laid off or having work hours reduced
  • inability to work because of lack of child care
  • closing or reducing hours of a business owned or operated by the individual

Unless you elect not to, CRD payments will, by default, be taxed ratably over the next three years. We encourage you to consult with your tax professional on how CRD payments taken will impact your future personal income tax returns, and to determine if you qualify to take a CRD.

Please note: Eagle Life does not need to verify distributions are for coronavirus-related distributions. In addition, the CRD information above is an informational update only. There is not a unique way to report CRD payments on Form 1099-R, and you can expect CRD payments to be reported like any other distribution on Form 1099-R. 

 Can CRD payments be repaid to an IRA?

You may recontribute CRD payments over the next three years. The recontribution must be made during the three-year period beginning the day after the CRD payment was received. Recontributions may be made in one or multiple payments. The total amount of contributions may not exceed the total of CRD payments received.

CRD payments that are repaid will not be taxable. We encourage you to consult your tax professional to understand how this will impact your future personal income tax returns.

If you indicate you are repaying a CRD, Eagle Life will report this as a direct transfer. It is your responsibility to notify us if you intend a contribution to be a repayment of a CRD payment.

Additional Tax Information

 When is the deadline to make 2019 contribution to my IRA?

The IRS has extended the deadline to make 2019 contributions. 2019 contributions can be applied to a contract until July 15, if post marked by that date.

 When can I expect to receive my 2019 Form 5498 from Eagle Life?

The IRS, at this time, has provided an option to file and mail Form 5498s by July 15th. Eagle Life will continue to mail Form 5498s in May as in past years. If you contribute after we begin mailing Form 5498s, Eagle Life will mail you a corrected Form 5498.

 

We hope you and your family are staying safe and healthy during these challenging times and are here to support you.

This is an initial interpretation of changes related to the CARES Act. The IRS may release additional guidance to address other situations and questions. The information provided is not intended as legal or tax advice. If you are seeking advice on any updates or questions related to the CARES Act, we encourage you to consult with a qualified tax professional.

If you have questions, call (866) 526-0995.