America has been taught to save through payroll deductions and investments in company sponsored plans such as 401k, 403b, 457, and Thrift Savings Plans. While these plans have grown to over $5.7 Trillion,1 the provisions can be rigid and the investment choices very limited. Truth is most employer plans require you to either leave the company or achieve the age of at least 59.5 years before you are allowed to take a distribution (or roll-over) of your retirement funds.
It appears that there is an unintended benefit to the recently enacted bill called the CARES Act. As part of the Covid-19 related legislation, a window of opportunity may have opened to permit an employee to move up to $100,000 of funds from their company sponsored retirement plan into a self-directed NuView Trust IRA account, all without tax consequences.
Here are the main points2:
Under the CARES Act, COVID-19 related distributions of up to $100,000 may be made from eligible retirement plans between Jan. 1 and Dec. 30, 2020. Such distributions are not subject to the 10 percent additional tax that otherwise applies to distributions made before an individual reaches age 59½.
These COVID-19 related distributions may be included in a participant’s income in equal installments over a three-year period and may be recontributed over a three-year period to a plan or IRA to “undo” the tax consequences of the distribution.
Under the CARES Act, a qualified individual is anyone who:
- Is diagnosed, or whose spouse or dependent is diagnosed, with the virus SARS-CoV-2 or COVID-19 by a test approved by the Centers for Disease Control and Prevention (including a test authorized under the Federal Food, Drug, and Cosmetic Act)
- Experiences adverse financial consequences as a result of the individual, the individual’s spouse, or a member of the individual’s household (that is, someone who shares the individual’s principal residence)
Due to COVID-19
- Being quarantined, being furloughed, or laid off, or having work hours reduced
- Being unable to work due to lack of childcare
- Closing or reducing hours of a business that they own or operate
- Having pay or self-employment income reduced
- Having a job offer rescinded or start date for a job delayed
Notice 2020-50 expands the definition of qualified individual i) by expanding the definition of adverse financial consequences to include factors such as reductions in pay, rescissions of job offers, and delayed start dates and ii) to include a participant’s spouse or household member who experiences adverse financial consequences.
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It is the responsibility of the individual to certify that they are eligible. Especially due to the additional IRS guidelines under notice 2020-50, those provisions are relatively broad.
How does it work?
Once the individual has received the distribution from their employer’s plan, they can open an IRA with NuView Trust and send a check or wire for the amount distributed to them. While there is the option to deposit those funds as long as 3 years from the date of distribution in order to eliminate the effect of possible taxation, for many it would be most prudent to move the funds as soon as possible. This will permit the benefit of tax deferred growth inside the NuView IRA and more importantly, provide access to the broadest of investment choices.
Believe me, this is a big deal – there has never been a similar provision in the more than 45 years since the first 401k and IRA were created. If you have a NuView IRA, you can simply add your rollover funds to it, or add an additional account if you need a second account such as a Roth IRA to go with your traditional account.
This window closes on December 30, 2020 and will likely not open again. Who knows, our prayers may be answered with a Covid-19 vaccine by then. Either way, your funds will be freed from the limited investment choices of your employer plan into a world of opportunity afforded by a self-directed IRA.
A Tax-Free Way to Move Funds from your Employer Plan
- Ask your plan administrator where you are employed if they are offering the CARES Act distribution option in their retirement plan
- Request a distribution based on the requirements listed in the CARES Act
- If you do not have an IRA account, open a Roth or Individual IRA account with NuView Trust
- Send a portion, or all of your distribution from your employer to your NuView IRA account – this is called an “Indirect Rollover”. (Try to do this as soon as possible to avoid having to file amended tax returns to recover taxes charged in prior years)
Don’t lose this opportunity to unlock your retirement plan, and let your friends know as well. If you need further information, please contact us at 877-259-3256 or via e-mail at info@nuviewira.com.
- American Benefits Council Jan 2019
- The National Law Review, July 1, 2020
Note: additional background information provided by FuturePlan, a leading provider of employer plan benefits.
Written by Glen Mather, NuView Trust CEO
