Coronavirus-Related Retirement Account Provisions in the CARES ACT

The CARES Act, signed into law in March, 2020, contains provisions that allow use of retirement plans and IRAs during the Coronavirus pandemic.

Postponed Required Minimum Distribution in 2020

For 2020 only, required minimum distributions (“RMD”) are not required. If an RMD for 2020 has already been made, to avoid taxation in 2020, the payment can be rolled back into the plan if the repayment is made within 60-days of the date the RMD was made.

Penalty-Free Early Withdrawal Distributions in 2020

Under the CARES Act, a plan sponsor may allow eligible participants to take penalty-free distributions of up to $100,000 from their eligible retirement plan accounts and IRAs in 2020, subject to the following conditions:

i) The participant, spouse or dependent of the plan participant is diagnosed with COVID-19 by a test approved by the CDC; or

ii) The participant “experiences adverse financial consequences” as a result of being furloughed, being laid off, being quarantined, or reduced work hours due to COVID-19; or

iii) The participant cannot work because of COVID-19 child care issues; or

iv) The participant has closed (or reduced hours in) a business owned and operated by them; or

v) The participant has experienced other factors as determined by the Secretary of the Treasury.

Eligible retirement plans include qualified retirement plans (e.g., a 401(k) plan), Section 403 plans, governmental plans, and IRA.

In addition, COVID-19 distributions (except for 457 plan distributions) may be re-contributed to the participant’s plan, or to another retirement plan, within 3 years from the date of the distribution.

If the participant does not re-contribute the COVID-19 distribution within that time period, the income tax due on the distribution may be spread over a three-year period, without a 10% early withdraw penalty.

Qualified Retirement Plan Loans

The $50,000 limit for plan loans to participants made during the 180-day period starting on March 27, 2020 is increased to $100,000. In addition, the current loan cap of 50% of the present value of the participant’s vested benefit in the plan is increased to 100%.

The due date for the repayment of such loans through December 31, 2020 can be delayed for up to 1 year. The later repayments are also adjusted as needed to reflect the prior delayed due date, plus any interest accruing during such delay. For purposes of calculating the 5-year maximum loan payback period, the delay period is ignored.

If you have any questions regarding how the CARES Act may affect your retirement planning, please contact Scott Mitnick, Esquire, by e-mail or call (609) 348-1300. Our office conveniently located in Atlantic City represents clients throughout New Jersey including Atlantic County, Cape May County, Camden County, and Ocean County.

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