The CARES Act

Published:

Authors:
Howard Essner, JD, General Counsel, Family Wealth & Retirement Plan Advisor


On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was passed by Congress and signed into law by President Trump. The CARES Act provides economic incentives across a broad swatch of our economy including for individuals, large and small businesses and non-profits. This quick note covers some of the key provisions of the CARES Act relating to retirement plan participants and IRA owners. 

The CARES Act makes important changes in following areas:

  • Temporary relief from the Required Minimum Distribution (RMD) rules from retirement plans and IRAs for 2020.
  • Penalty-free distributions from retirement plans and IRAs for individuals affected by the virus.
  • Increased flexibility for loans from retirement plans.
  • Increased flexibility on defined benefit plan funding for small businesses.

Some details:

  • RMD Rules The CARES Act waives the RMD rules for 2020 for all retirement plans and IRAs.
  • Withdrawal Options The Act allows eligible participants to request distributions of up to $100,000 from retirement plans or IRAs for qualifying coronavirus-related reasons. The allowable reasons include adverse financial consequences due to being quarantined, furloughed, laid-off or having work hours reduced; being unable to work due to a lack of childcare; or closing or reducing hours of a business owned or operated by the individual. The withdrawals will still be considered taxable income, but all early withdrawal penalties will be waived. In addition, the Act allows individuals who take such withdrawals to pay the tax on the income from the withdrawal over the span of three years, starting with the 2020 tax year, and to repay the distribution to the plan or IRA within three years to avoid taxation. Such repayments are not subject to annual dollar limits on contributions.
  • Plan Loans The Act doubles the current retirement plan loan limits to the lesser of $100,000 or 100% of the participant’s vested account balance in the plan. Individuals with an outstanding loan from their plan with a repayment due from the date of enactment through Dec. 31, 2020, can delay their loan repayment(s) for up to one year. Also, all contribution sources (other than money purchase pension plan sources) will be available for loans.
  • Defined Benefit Funding The Act allows small businesses who sponsor defined benefit plans some flexibility to delay funding contributions due in 2020. 

We expect much more guidance on these changes from the IRS and DOL in the coming days. We will provide regular updates as we learn more. 

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