IRA

IRS Issues Deadline Relief for Tennessee Storm Victims

The IRS has issued a news release announcing the postponement of tax-related deadlines for Tennessee victims of severe storms, straight-line winds, tornadoes, and flooding. The tax relief postpones various tax filing and payment deadlines that occurred starting March 25. Affected taxpayers with a covered deadline on or after March 25, 2021, and before August 2, 2021, will have until August 2, 2021, to complete certain time-sensitive, tax-related acts. This includes the May 17 deadline for filing 2020 individual income tax returns and paying any tax due. Taxpayers also have until August 2 to make 2020 IRA contributions.

In addition, the relief includes completion of acts described in IRS Revenue Procedure 2018-58 and Treasury Regulation 301.7508A-1(c)(1), which include filing Form 5500 for retirement plans, completing rollovers, and making retirement plan loan payments.

“Affected taxpayer” automatically includes any individuals who live, and businesses whose principal place of business is located, in the covered disaster area. The areas included in this relief are Campbell, Cannon, Cheatham, Claiborne, Clay, Davidson, Decatur, Fentress, Grainger, Hardeman, Henderson, Hickman, Jackson, Madison, Maury, McNairy, Moore, Overton, Scott, Smith, Wayne, Williamson, and Wilson counties.

Those who reside or have a business located outside the covered disaster area, but have been affected by the disaster, may contact the IRS at 866-562-5227 to request relief.


Securing a Strong Retirement Act Re-Introduced

House Ways and Means Committee Chairman Richard Neal (D-MA) and Ranking Member Kevin Brady (R-TX) have introduced the Securing a Strong Retirement Act (SSRA) of 2021, legislation that was first introduced in October 2020. It builds upon the Setting Every Community Up for Retirement Enhancement Act (SECURE) Act of 2019. The House Ways and Means Committee held a markup hearing Wednesday, May 5, and unanimously voted to advance this legislation to the full House of Representatives to vote on the measure.

This legislation is the first comprehensive bipartisan retirement legislation introduced in 2021. SSRA of 2021 expands upon and includes additional provisions from the SSRA of 2020. While this bill (and others) have been coined by many as “SECURE 2.0,” it is prudent to follow retirement legislation developments by bill name for clarity and think of “SECURE 2.0” in the context of retirement reform generally.

The new and amended provisions include the following changes from the 2020 proposal.

  • Requires automatic enrollment of eligible employees in 401(k) and 403(b) plans with certain exceptions and grandfathering provisions, but eliminates the same requirement for SIMPLE IRA plans that appeared in the 2020 proposal
  • Increases the required minimum distribution (RMD) age to 73 on January 1, 2022; to age 74 on January 1, 2029; and to age 75 on January 1, 2032. The SECURE Act previously increased the age from 70½ to 72.
  • Drops the provision aligning ESOP rules of S Corporations with those of C Corporations that appeared in the 2020 proposal, but adds a placeholder that it is a Congressional goal to preserve and foster employee ownership of S Corporations through ESOPs
  • Provides an additional, indexed higher tier of catch-up deferral contributions for those who are age 62, 63, and 64
  • Permits 403(b) plans to participate in multiple employer plan (MEP) arrangements, specifically including pooled employer plans (PEPs)
  • Reduces from three years to two years the period of service requirement for long-term, part-time workers, and disregards pre-2021 service for vesting purposes
  • Directs the Departments of Labor (DOL) and Treasury to issue regulations explaining what fiduciaries need to do to meet their fiduciary duty in searching for missing participants
  • Eliminates the provision permitting tax-free qualified charitable contributions to be made from employer-sponsored retirement plans that appeared in the 2020 proposal
  • Permits employers to perform top-heavy tests separately for defined contribution plans covering excludable employees
  • Limits repayment of qualified birth or adoption distributions to three years
  • Permits participants to self-certify that deemed hardship distribution conditions are met in certain circumstances
  • Permits participants who self-certify that they have experienced domestic abuse to withdraw the lesser of $10,000 or 50 percent of their account without being subject to the 10 percent early distribution penalty tax. The funds could be repaid to the plan over three years.
  • Makes changes to stock attribution rules under family attribution for coverage and nondiscrimination testing
  • Permits discretionary amendments that increase benefits to participants to be adopted by the due date of the employer’s tax return
  • Permits new 401(k) plans established after the end of the taxable year but before the employer’s tax filing date that are treated as having been established on the last day of the taxable year to receive elective deferrals up to the due date of the employee’s tax return for the initial year when they are sponsored by sole proprietors and single-member LLCs
  • Limits only the portion of an IRA used in a prohibited transaction to be treated as distributed, as opposed to current rules disqualifying and treating the entire IRA as distributed
  • Permits SIMPLE IRAs to accept Roth contributions, and, plan permitting, allows employees to treat employee and employer SEP contributions as Roth contributions
  • Matches hardship rules for 403(b) plans to the 401(k) plan rules
  • Requires catch-up contributions to be made on a Roth basis beginning January 1, 2022
  • Permits defined contribution plans to provide participants with the option of receiving match contributions on a Roth basis
  • Plan amendments pursuant to this legislation must generally be made by the end of the 2023 plan year (2025 for governmental plans); plan amendment dates under the SECURE Act, CARES Act, and the Taxpayer Certainty and Disaster Tax Relief Act of 2020 are revised to conform with the same new dates

 

This legislation carries forward the following provisions from the 2020 proposal.

  • Further enhances the small retirement plan start-up credit, with a maximum credit of 100% (vs. the current 50%) for employers with no more than 50 employees
  • Requires the IRS to promote the saver’s credit
  • Permits 403(b) plans to invest in collective investment trusts
  • Provides for indexing of IRA catch-up contributions
  • Permits certain student loan repayments to qualify for employer retirement plan matching contributions
  • Allows a small employer joining a MEP or PEP arrangement to potentially claim a small plan start-up credit during the first three years of the MEP/PEP arrangement’s existence
  • Provides a new small employer tax credit for enhanced plan eligibility for military spouses
  • Permits immediate de minimis financial incentives, in addition to a matching contribution, to individuals for contributing to a retirement plan
  • Enhances options for correcting employee salary deferral errors
  • Increases the qualifying longevity annuity contract RMD exemption
  • Permits increasing payments in IRA and defined contribution plan life annuity benefits
  • Allows retirement plan fiduciaries additional discretion in whether to seek recoupment of accidental overpayments
  • Reduces excise tax on certain failures to take RMDs
  • Changes disclosure rules for performance benchmarks for asset allocation funds
  • Directs Treasury, DOL, and the Pension Benefit Guaranty Corporation (PBGC) to review and report on reporting and disclosure requirements and makes recommendations to Congress to consolidate, simplify, standardized, and improve such requirements
  • Simplifies retirement plan disclosures to non-participating employees
  • Creates a national online “lost and found” database to connect individuals with unclaimed retirement account benefits
  • Expands the IRS retirement plan correction program to permit self-correction of certain inadvertent IRA errors
  • Eliminates “first day of the month” deferral election requirement for governmental 457(b) plans
  • Requires defined contribution plans to provide paper benefit statements at least once annually, unless a participant elects otherwise
  • Makes certain technical corrections to SECURE Act provisions

IRS Issues Deadline Relief for Alabama Victims of Severe Storms and Tornadoes

The IRS has issued a news release announcing the postponement of certain tax-related deadlines for Alabama victims of severe storms, straight-line winds, and tornadoes. The tax relief postpones various tax filing and payment deadlines that occurred starting on March 25. The areas included in the relief are Bibb, Calhoun, Clay, Hale, Jefferson, Perry, Randolph, and Shelby counties.

In addition to extending certain tax filing and tax payment deadlines, the relief includes completion of many time-sensitive, tax-related acts described in IRS Revenue Procedure 2018-58 and Treasury Regulation 301.7508A-1(c)(1), which include filing Form 5500 for retirement plans, completing rollovers, and making retirement plan loan payments.

Affected taxpayers with a covered deadline on or after March 25, 2021, and before August 2, 2021, will have until August 2, 2021, to complete the act(s). This includes the May 17 deadline for filing 2020 individual income tax returns and paying any tax due. Taxpayers also have until August 2 to make 2020 IRA contributions.

“Affected taxpayer” automatically includes any individuals who live, and any businesses whose principal place of business is located, in the covered disaster area. Those who reside or have a business located outside the covered disaster area, but have been affected by the disaster, may contact the IRS at 866-562-5227 to request relief.


IRS Issues Deadline Relief for Kentucky Severe Storms Victims

The IRS has issued a news release announcing the postponement of certain tax-related deadlines for Kentucky victims of severe storms, flooding, landslides, and mudslides. The tax relief postpones various tax filing and payment deadlines that occurred starting on February 27. The areas included in the relief are Boyd, Breathitt, Carter, Casey, Clay, Cumberland, Elliott, Estill, Floyd, Franklin, Jackson, Johnson, Knott, Knox, Lawrence, Lee, Lincoln, Magoffin, Marion, Martin, Mason, Morgan, Ohio, Pike, Powell, Rockcastle, and Wolfe counties.

In addition to extending certain tax filing and tax payment deadlines, the relief includes completion of many time-sensitive, tax-related acts described in IRS Revenue Procedure 2018-58 and Treasury Regulation 301.7508A-1(c)(1), which include filing Form 5500 for retirement plans, completing rollovers, and making retirement plan loan payments.

Affected taxpayers with a covered deadline on or after February 27, 2021, and before June 30, 2021, will have until June 30, 2021, to complete the act(s). This includes the May 17 deadline for filing 2020 individual income tax returns and paying any tax due. Taxpayers also have until June 30 to make 2020 IRA contributions.


IRS Publication Provides Some Details on Beneficiary Rules and CRD Repayments

The 2020 tax year version of IRS Publication 590-B, Distributions From Individual Retirement Arrangements (IRAs), reflects the following noteworthy updates pursuant to the passage of the Setting Every Community Up for Retirement Enhancement (SECURE), Coronavirus Aid, Relief, and Economic Security (CARES), and Consolidated Appropriations Acts.

10-Year Rule

The publication confirms that designated beneficiaries who are not eligible designated beneficiaries are generally subject to a 10-year payout period. It indicates not to use any of the distribution tables if either the 5-year rule or the 10-year rule apply. The publication also cautions beneficiaries that if the 10-year rule applies, the amount remaining in the IRA, if any, after December 31 of the year containing the 10th anniversary of the owner’s death is subject to the 50 percent excise tax—further validating that the applicability of the 10-year rule is similar to the 5-year rule and no annual minimum distributions would be required, so long as the account was depleted by December 31 of the final year. However, an example within the publication (that was used in previous versions) illustrates a life expectancy calculation for a designated beneficiary where presumably one would not be required, raising questions as to its applicability or whether it was an oversight when the publication was updated.

Additionally, the publication implies that the 10-year rule is not an option for an eligible designated beneficiary if the IRA owner died on or after her required beginning date. Again, this raises questions as to whether this was also an oversight or the IRS is suggesting that the “at least as rapidly” rule would remain for such eligible designated beneficiaries, meaning that life expectancy payments must continue to be disbursed from the IRA once an IRA owner has reached her required beginning date.

Election Deadline for Eligible Designated Beneficiaries

There were outstanding questions on deadlines for making beneficiary elections. The publication states that the deadline for an eligible designated beneficiary making an election is the earlier of

  • December 31 of the year the beneficiary must take his first life expectancy payment or
  • December 31 of the year containing the 10th anniversary year of the owner’s death (or 5th anniversary year of the owner’s death if applicable).

Nonpersons as Beneficiaries

The sections of the publication addressing beneficiaries who are not individuals remain largely unchanged, confirming that pre-SECURE Act rules continue to apply to non-person beneficiaries such as estates, charitable organizations, and nonqualified trusts. Moreover, the sections addressing the “look through” provision for trust beneficiaries also remains unchanged, where there are numerous outstanding questions on how the SECURE Act provisions apply to trust beneficiaries.

CRD Repayments

The publication specifies that a coronavirus-related distribution (CRD) repayment is to be treated as a trustee-to-trustee transfer in that it is not included in income. This suggests that a CRD taken from a Traditional IRA could not be repaid to a Roth IRA, since trustee-to-trustee transfers may only occur between similar account types.

Proposed regulations addressing beneficiary and required minimum distribution rules under the SECURE Act are anticipated soon and should provide additional clarity.


DOL Releases Additional Prohibited Transaction Exemption Guidance

The Department of Labor (DOL) has issued two pieces of guidance on its new fiduciary advice prohibited transaction exemption, PTE 2020-02. The first piece is titled, “Choosing the Right Person to Give You Investment Advice: Information for Investors in Retirement Plans and Individual Retirement Accounts,” which is intended to educate retirement savers about considerations when choosing a potential advisor. The second piece of guidance, which is briefly highlighted further below, is titled, “New Fiduciary Advice Exemption: PTE 2020-02 Improving Investment Advice for Workers & Retirees,” and is a detailed set of frequently asked questions (FAQs).

PTE 2020-02 was issued under the Trump administration and replaced a fiduciary investment advice guidance package issued under the Obama administration that was struck down in federal court in 2018. While the exemption became effective February 16, 2021, the DOL had indicated related guidance would be published soon.

The guidance again confirms that a temporary EBSA enforcement policy that has been in place since the Obama era guidance was vacated—Field Assistance Bulletin (FAB) 2018-02—will remain in place until December 20, 2021.

The DOL indicates that it is considering additional actions to improve the exemption and the investment advice fiduciary regulation, but that core components of the exemption, including the impartial conduct standards, are fundamental investor protections which should not be delayed, and that any regulatory actions will be preceded by notice and opportunity for comment.

Several questions in the FAQ focus on rollover recommendations, including when the recommendation is considered to be on a “regular basis” and what considerations and documentation are needed to obtain prohibited transaction relief for such recommendations.

In the section titled, “Compliance with PTE 2020-02”, the DOL reviews requirements of the PTE related to the following.

  • Impartial conduct standards, including standards of best interest, reasonable compensation, and making no misleading statements
  • Disclosures concerning acknowledgement of financial institution and investment professional status as fiduciary, as well as any conflicts of interest
  • Policy and procedures to include addressing potential conflicts of interest related to financial institution “payout grid” or fixed percentage commission compensation schemes
  • Retrospective review including careful review and certifications by senior executives of a written report

DOL Releases Cybersecurity Guidance for Plan Sponsors, Fiduciaries, Service Providers, and Participants

The Department of Labor’s (DOL) Employee Benefits Security Administration (EBSA) today released a three-part guidance package on cybersecurity for plan sponsors, plan fiduciaries, service providers, and participants. This guidance comes on the heels of the Government Accountability Office (GAO) report on cybersecurity risks for retirement plans released earlier this year. An EBSA news release accompanies the guidance release.

Tips for Hiring a Service Provider with Strong Cybersecurity Practices is a list of tips and questions for plan sponsors and fiduciaries to ask of their service providers about the providers’ cybersecurity practices. The tips are designed “to help business owners and fiduciaries meet their responsibilities under ERISA to prudently select and monitor such service providers.” Fiduciaries are encouraged to ask about a service provider’s security standards and practices, how those practices are validated, and how the service provider responded to any past security breaches. Additionally, fiduciaries are advised to ensure that their contract with a service provider covers areas regarding cybersecurity protection for the plan and its participants.

Cybersecurity Program Best Practices is a list of 12 best practices that recordkeepers and other service providers responsible for plan-related IT systems and data should follow. While designed as best practices, in implementation the list appears to establish minimum standards that recordkeepers should follow regarding their IT systems that hold plan and participant data. Among the recommendations, the best practices define how a “prudently designed” cybersecurity program will operate, including reviews of annual risk assessments and third-party audits, and how a recordkeeper maintains access control of information among its employees. Recordkeepers are also advised to maintain business continuity, disaster recovery, and incident response plans.

Online Security Tips is a list of common-sense recommendations for participants and beneficiaries to follow to help reduce the risk of fraud and loss in their retirement accounts. While designed with retirement accounts in mind, this list provides good recommendations for all general online activity that everyone should keep in mind. Individuals are advised to register and routinely monitor their online accounts while using strong and unique passwords with multi-factor authentication. Being mindful of phishing attacks and wary of free wi-fi are also important to reduce a criminal’s access to one’s personal information and accounts.


IRS Confirms Tax Filing Extension and Announces Postponed IRA, HSA Contribution Deadline

The IRS has issued Notice 2021-21, in which the IRS makes official the previously announced delay of the April 15, 2021 federal income tax filing due date for individuals for the 2020 tax year to May 17, 2021. This delay is a result of the ongoing COVID-19 Emergency Declaration issued in March 2020.

The tax return due date for an affected taxpayer is automatically postponed to May 17, 2021. An “affected taxpayer” is defined as any person with a federal income tax return or income tax payment filed on a Form 1040, U.S. Individual Income Tax Return, series with an original due date of April 15, 2021. No form, including IRS Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return, is required to obtain this relief, and it applies to all schedules, returns, and other forms that are attachments to the Form 1040 series or required to be filed by the Form 1040 series due date.

In conjunction with the Form 1040 series delay, Notice 2021-21 also automatically postpones to May 17, 2021,

  • the time for affected taxpayers to make 2020 contributions to their Traditional IRAs and Roth IRAs, health savings accounts (HSAs), Archer medical savings accounts (Archer MSAs), and Coverdell education savings accounts (Coverdell ESAs), and
  • the time for reporting and payment of the 10 percent additional tax on amounts includible in gross income from 2020 IRA or employer-based retirement plan distributions.

The due date for filing and furnishing forms in the Form 5498, IRA Contribution Information, series is postponed to June 30, 2021.

This relief provided for filing federal income tax returns and paying federal income taxes does not apply to businesses or any other type of taxpayer who files federal income tax returns on forms other than the Form 1040 series. Notice 2021-21 further states that “no extension is provided in this notice for the payment or deposit of any other type of federal tax, including federal estimated income tax payments, or for the filing of any federal return other than the Form 1040 series and the Form 5498 series for the 2020 taxable year.”

While this guidance only applies to the filing of federal tax returns, many states have issued similar delays. Individuals are advised to review their state and local regulations to ensure compliance with all 2020 filing deadlines.


IRS Announces Extension to File Tax Return

The Treasury Department and IRS have announced that tax filing due dates for 2020 tax year federal income tax returns, including the federal income tax payment deadline, will be automatically extended from April 15, 2021, to May 17, 2021. No special form must be filed to request the filing extension. The IRS will be providing formal guidance in the coming days.

While the postponement of federal income tax payments seems to suggest that certain other actions tied to the normal April 15, 2021 filing deadline may be extended as well—such as making 2020 IRA and health savings account (HSA) contributions, similar to the extension provided in 2020—it is not clear at this time.


IRS Issues Deadline Relief for Louisiana Victims of Winter Storms

The IRS has issued a news release announcing the postponement of certain tax-related deadlines for Louisiana winter storm victims. The tax relief postpones various tax filing and payment deadlines that occurred starting on February 11. The entire state of Louisiana is included in this relief. Taxpayers in other locations will automatically be added to this relief if the disaster area is further expanded.

In addition to extending certain tax filing and tax payment deadlines, the relief includes completion of many time-sensitive, tax-related acts described in IRS Revenue Procedure 2018-58 and Treasury Regulation 301.7508A-1(c)(1), which include filing Form 5500 for retirement plans, completing rollovers, and making retirement plan loan payments.

Affected taxpayers with a covered deadline on or after February 11, 2021, and on or before June 15, 2021, will have until June 15, 2021, to complete the act(s). “Affected taxpayer” automatically includes anyone who resides or has a business located within the designated disaster area. Those who reside or have a business located outside the identified disaster area, but have been affected by the disaster, may contact the IRS at 866-562-5227 to request the relief.