Client Alert: CARES Act Impact on Qualified Retirement Plans and Individual Retirement Accounts
The CARES Act provides for increased access to funds in employer retirement plans for individuals impacted by the Coronavirus. The relief is provided to a “qualified individual”:
- Diagnosed with COVID-19 or SARS-CoV-2,
- Whose spouse or dependent is diagnosed with COVID-19 or SARS-CoV-2, or
- Who experiences adverse financial consequences because of a quarantine, work layoff or furlough, loss of child care, or business closure due to COVID-19.
The eligibility for the special distributions may be expanded by the Secretary of the Treasury.
Penalty Free Distributions and Delayed Tax Rules
The CARES Act provides that distributions of up to $100,000 may be made from qualified retirement plans from January 1, 2020 through December 31, 2020 and will not be subject to the 10% penalty for early distributions and will not be subject to federal and state income tax withholding. The distributions may be repaid over three years and will be taxed over a three year period to the extent the distributions are not repaid.
Expanded Loan Opportunities
The CARES Act also provides for expanded loans from qualified plans for qualified individuals for the 180- day period following enactment. The typical loan limit of the lesser of $50,000 or 50% of the participant’s vested account balance is increased to the lesser of $100,000 or 100% of the participant’s vested account balance. In addition, if a qualified individual has a loan outstanding from a qualified plan, loan repayments may be delayed for one year. The plan loans will be reamortized to reflect the delayed repayments.
Suspension of Minimum Distributions
Required minimum distributions for individuals age 70-1/2 or older are suspended for all individuals, not just “qualified individuals,” for 2020. The suspension applies to required distributions from defined contribution plans such as 401k) plans, tax deferred annuity contracts, governmental 457 plans, and individual retirement accounts.
The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.