CARES Act and Retirement Plans
The CARES Act that was recently passed had numerous provisions to stimulate the economy. Among the provisions passed, there are a few related specifically to retirement plans for qualifying plan participants, summarized below:
CARES Act Changes:
- Doubling the amount taxpayers can borrow from certain qualified retirement accounts to $100,000;
- Suspending required minimum distributions for 2020 and those remaining in 2019:
- Waiver applies to IRA owners who turned 70 ½ in 2019 – even though Secure Act has increased the RMD age to 72 for those who turn 70 ½ in 2020 or later.
- Waives 10% early distribution penalty on up to $100,000 of 2020 distributions from IRA and company plans for ‘affected individuals’ – tax would be due, but could be spread evenly over three years, and funds could be repaid over the three-year period.
- The 10% penalty is waived, but amount withdrawn is still subject to tax.
- Increases the maximum amount of plan loans to the lesser of $100,000 (reduced by outstanding loans) or 100% of the account balance. The usual limit is the lesser of $50,000 (reduced by outstanding loans) or 50% of the account balance.
- Any loan repayments normally due between date of enactment and December 31, 2020 could be suspended for one year.
Qualifying Plan Participants (Affected Individuals):
A qualified individual is an individual
- Who is diagnosed with the virus SARS-CoV-2 or with Coronavirus Disease 2019 by a test approved by the Centers for Disease Control and Prevention, or
- Whose spouse or dependent is diagnosed with such virus or disease by such a test, or
- Who experiences adverse financial consequences as a result of being quarantined, being furloughed or laid off or reduced work hours, being unable to work due to lack of child care, closing or reducing hours of a business owned or operated by the individual, or other factors as determined by the Secretary of the Treasury.
We will continue to monitor and keep you updated as additional information and guidance is released. If you have any questions or need further assistance, please contact us, 517.323.7500.