How the CARES Act impacts your retirement plan
Relief provisions for those negatively impacted by COVID-19
The Coronavirus Aid, Relief and Economic Security Act (also known as the CARES Act) provides, among other things, modifications and relief options for individuals and businesses negatively impacted by COVID-19 (coronavirus), including provisions related to Individual Retirement Accounts (IRAs) and qualified employer retirement plans.
If you own an IRA and/or participate in an employer retirement plan, you should be aware of the following provisions in the CARES Act – particularly if you (or your spouse or dependent) are diagnosed with COVID-19 or experience adverse financial effects as a result of COVID-19 (such as layoffs, furloughs, business closures, quarantines or child care responsibilities).
No early withdrawal penalty
If you qualify for COVID-19 relief, you can withdraw up to $100,000 from your qualified retirement accounts – including IRAs, 401(k) plans and 403(b) plans – without incurring the usual 10% early withdrawal penalty. You will still owe income tax on the distribution, but you can pay it over a three-year period. And, you can recontribute the money into your accounts within three years without regard to contribution limits. Contact your retirement plan administrator to determine if you qualify and if your plan allows for this type of distribution.
Increased retirement plan loan amounts
If you are affected by COVID-19, you can take out a loan of $100,000 (normally $50,000) for 2020 if your retirement plan offers them. And, any loan repayments due between March 27 and Dec. 31, 2020, may be delayed until next year. Please note there is no loan provision in IRAs.
Required minimum distribution waiver for 2020
The CARES Act temporarily waives the required minimum distribution (RMD) from defined contribution plans, 403(b) plans and IRAs for 2020 if you have:
- Established a periodic distribution to meet the annual RMD requirement. Contact your retirement plan if you want to suspend those distributions until 2021.
- Waited until 2020 to receive your 2019 RMD because you were born between July 1, 1948, and June 30, 1949.
- Already received RMDs in 2020. You have until July 15, 2020 to rollover RMDs you received on or after February 1, 2020. RMDs from beneficiary accounts are not eligible for rollover. Please see your tax advisor for other restrictions.
Get more information before you decide
If you think you might qualify for any of these provisions allowed under the CARES Act, your financial consultant can work with you – and your retirement plan administrator and/or tax professional – to navigate your decision-making process.
The CARES Act comes just three months after another piece of legislation that also impacts retirement plans – the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act), which was signed into law in December 2019. If you are age 70 ½ or older, download our information sheet about changes from these two acts that impact you.