The New CARES Act and the Impact on Retirement Plans & IRAs
On March 27, 2020, Congress responded to the COVID-19 emergency by adopting H.R. 748, also known as the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the most massive economic recovery legislation in our country’s history. We expect to be discussing key provisions with you in person (virtually), but below share a summary of some aspects of it that we think you should know about concerning company retirement plans and IRAs. As always, if you have questions please be in touch.
Retirement plan loans and distributions: Maximum amount increased to $100,000 on up to the entire vested amount for coronavirus-related loans. Delay repayment up to a year for loans taken from March 27–year-end 2020.
Coronavirus-Related Distributions up to $100,000
You can tap into your retirement account ahead of time in 2020 for a coronavirus-related distribution of up to $100,000, without incurring the usual 10% penalty or mandatory 20% Federal withholding. You’ll still owe income tax on the distributions, but you can prorate the payment across three years. Or you can elect to include all the income from a coronavirus-related distribution in your 2020 income.
Later the funds can be rolled back into your IRA or retirement plan. Beginning on the day after an individual receives a coronavirus-related distribution, you have up to three years to roll all, or any portion, of the distribution back into a retirement account. Furthermore, such repayment can be made via a single rollover, or multiple partial rollovers made during the three-year period. Finally, if distributions are rolled using this option, an amended return can be filed to claim a refund of any tax paid on the rolled over amount.
Changes in Loan Limits and Repayments under Employer-Sponsored Retirement Plans
For the 180 days following enactment of the CARES Act, the standard loan limits of the lesser of 50% of vested account balance or $50,000 are increased to the lesser of 100% of vested account balance or $100,000 for participants impacted by the coronavirus as described below.
Payments on existing loans that are due between March 27, 2020 and December 31, 2020 may be postponed for up to one year. Interest on those non-payments will continue to accrue and the loan payment schedule after the postponement will have to be reamortized.
Who’s eligible for Coronavirus-Related Distribution Relief?
To be eligible for coronavirus-related distribution relief, an individual must be impacted by the coronavirus. Under the CARES Act, an individual must self-certify in writing that they or a direct dependent has been diagnosed or financially impacted by the pandemic. You are impacted if you:
- Have been diagnosed with COVID-19
- Have a spouse or dependent who has been diagnosed with COVID-19
- Experience adverse financial consequences as a result of being quarantined, furloughed, being laid off, or having work hours reduced because of the disease
- Are unable to work because they lack childcare as a result of the disease
- Own a business that has closed or is operating under reduced hours because of the disease
- Meet some other reason that the IRS decides is OK
RMD relief: Required Minimum Distributions (RMDs) go on a holiday in 2020 for retirees, as well as beneficiaries with inherited retirement accounts. If you’ve not yet taken your 2020 RMD, don’t! If you have, please be in touch with us to explore potential remedies.
Required Minimum Distributions (RMDs) Due in 2020 are Waived
For retirees and beneficiaries with inherited IRAs the CARES Act waives required minimum distributions (RMDs) that are due in 2020. This includes RMDs being taken from IRAs as well as 401(k)s and other retirement plans. The retirement account owner or beneficiary need not be impacted by the coronavirus to be eligible for this waiver.
For this year only, if you’ve already received a required distribution for 2020 you may roll that amount to an IRA or back into the plan. This rollover option is not available for inherited IRAs.
With offices in Rutland and Williston, Vermont Copper Leaf Financial develops a customized wealth management plan designed to integrate every aspect of your financial life. Our approach is to conduct business in an orderly fashion, especially in a disorderly world. Where there is uncertainty we look for facts. We call our approach evidence-based investing. Call us today at 802.878.2731 to schedule a strategy session and begin building your road map to financial success.