The $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act passed in March is the largest aid package in the history of the U.S. The Act was designed to assist individuals and businesses financially burdened by the coronavirus and includes several retirement plan provisions.
Here’s how the CARES Act impacts retirees and individuals planning for their retirement.
Under the CARES Act, you can make coronavirus-related distributions (CRDs) of up to $100,000 from your retirement plan. These distributions aren’t subject to a 10% early withdrawal penalty tax. And, you have up to three years from the distribution date to repay these distributions.
The CARES Act gives plan sponsors the option to increase retirement plan loan limits to the lesser of $100,000 or 100 percent of the participant’s vested account balance for 180 days starting on March 27, 2020. This is double the existing loan limit.
In addition to the increase in loan limits, plan sponsors can extend loan payments due between March 27, 2020, and Dec. 31, 2020, by one year. Payments will need to be recalculated to reflect any additional interest accrued during this extended repayment period.
You’re eligible to take a CRD or loan if you’re a participant in a 401(k)-type defined contribution plan or individual retirement account (IRA) and can self-certify that you meet one of the following criteria:
- You receive a positive diagnosis for COVID-19
- Your spouse or a dependent receives a positive diagnosis for COVID-19
- You experience adverse financial consequences due to:
- Being quarantined, furloughed or laid off
- A reduction in work hours because of the coronavirus
- An inability to work because child care is unavailable
- The closing or reduction in business hours of a company you own
Employer defined benefit plan funding
The minimum required contribution for single-employer defined benefit plans normally due in 2020 may be extended to Jan. 1, 2021. This includes any interest due.
Required Minimum Distribution suspension
The CARES Act includes a waiver for Required Minimum Distributions (RMDs) during the 2020 calendar year. This provision isn’t limited to individuals directly impacted by COVID-19 – anyone with a qualified defined contribution plan can take advantage of this.
Even though you have the opportunity to amend your retirement plan with provisions in the CARES Act, you aren’t required to make plan changes. Plans can adopt provisions immediately as long as the changes are made before the last day of the first plan year that begins on or after Jan. 1, 2022.
Have questions about retirement plan provisions in the CARES Act? Let’s talk!