The recently passed Coronavirus Aid, Relief, and Economic Security (CARES) Act is a $2 trillion response to COVID-19. The bill is an emergency stimulus package designed to reduce the devastating effects and economic damage connected to social distancing and industries disruptions.
Early Retirement Account Withdrawals
From a retirement planning perspective, the CARES Act includes provisions that eliminate the 10% early withdrawal penalty from retirement accounts if the distributions are deemed “Coronavirus-Related Distributions.” This means you can withdraw up to $100,000 from a combination of IRAs or employer plans if you need to. The provision includes an option to spread the income taxation over 3 years as well as the ability to recontribute back to those same accounts.
A “Coronavirus-Related Distribution” must be because you’ve been diagnosed with COVID-19, have a spouse or dependent diagnosed with COVID-19, or experience adverse financial consequences as a result of being quarantined, furloughed, laid off, or having work hours reduced because of the disease.
Suspended Required Minimum Distributions
For retirees subject to Required Minimum Distributions (RMDs), the CARES Act suspends RMDs for 2020. This RMD suspension includes IRAs, employer retirement plans, 403(b) plans, and 457(b) plans. This suspension applies to “Stretch IRA” RMDs as well.
For investors who have already taken their 2020 RMD, there is a 60-day opportunity to return this year’s distribution (RMD) back to the account.
At this point, there is not a “roll back” option for beneficiary RMDs from inherited accounts.
Enhanced Loans from Employer Plans
The CARES Act includes enhancements to loans from employer retirement plans. Under the act, maximum loan amounts have increased from $50,000 to $100,000. Payments on the plan loan otherwise owed may be delayed one year.
Extended Deadline for 2019 Contributions
This one doesn’t actually stem from the CARES Act, but it does have to do with retirement accounts. For a particular year, you can make contributions to your IRA at any time during the year or by the due date for filing your tax return for that year — normally April 15. Because the due date for filing federal income tax returns has been postponed to July 15, 2020, the deadline for making contributions to your IRA for 2019 is also extended to July 15.
The employer grace period for contributions to their qualified retirement plans for 2019 is also extended to July 15, 2020.
Send Us Your Questions
Your own situation is going to be unique. Prior to taking an employer plan loan or an early withdrawal from a retirement account, consult your financial advisor and CPA.
These are challenging times for our world, nation, and business community.
We at Delap want to know: What questions do you have? Ask us your questions related to COVID-19 and your business, taxes, or other topics, and we’ll do our best to answer them on our blog in the near future.