On Friday March 27, 2020, the President signed the Coronavirus Aid, Relief and Economic Security Act (the CARES Act). The CARES Act addresses many provisions for business and health care relief including support for retirement plans.

In brief, plan distributions will be allowed for those employees that are affected by the coronavirus. Loan limits will increase and employees may request that loan repayments be delayed for up to one year. Lastly, Required Minimum Distributions (RMDs) are waived for 2020.

What does this mean for me?

The CARES Act opens up availability for distributions and loans. This means that you may now be eligible to access money from your retirement account.

If your plan permits it, you may be eligible for a coronavirus related distribution. These distributions are available to those participants who:

  • have been diagnosed with a coronavirus illness
  • have a spouse or dependent diagnosed
  • have experienced adverse financial consequences as a result of being quarantined, furloughed, laid off or had a reduction in work, loss of childcare or closure due to coronavirus

The distributions are limited to $100,000. They are exempt from the usual 10% early withdrawal penalty that would typically occur if you were to take money out of your plan prior to age 59 1/2. The distributions would also not be subject to the usual 20% mandatory tax withholding which is typically taken at the time of the distribution. The distribution proceeds can be taxed over a three year period beginning in the year of the distribution. It can also be repaid into an IRA or employer plan within 3 years of the distribution date.

What about loans?

If your plan allows, plan loan limits have also been increased. Normally, the amount of a loan that can be taken from a plan is the lesser of 50% of the vested account balance or $50,000. The CARES Act raises these limits to the lesser of $100,000 or 100% of the vested account balance for loans made before the 180 day period that ends September 24, 2020.

If your plan allows, plan loan limits have also been increased. Normally, the amount of a loan that can be taken from a plan is the lesser of 50% of the vested account balance or $50,000. The CARES Act raises these limits to the lesser of $100,000 or 100% of the vested account balance for loans made before the 180 day period that ends September 24, 2020.

What about my RMD?

Required Minimum Distributions (RMDs) may be waived for the 2020 year. This means that you do not need to take your RMD for 2020. If an RMD has been distributed, it may be rolled over to an IRA or employer plan.