CARES Act - The Skinny on the Retirement Provisions

The 2020 Stimulus Bill (aka the CARES Act) enacted by Congress and President Trump in response to the Covid-19 pandemic includes significant changes to distribution rules for retirement plans. Here are some of the highlights:

Required minimum distributions waived in 2020

The new law waives the required minimum distributions (RMDs) for IRAs and employer retirement plans, including 403(b)s and 457s accounts in 2020. First-timers who were supposed to take their 2019 RMDs by April 2020, can now delay taking the RMDs until 2021.

This provision also applies to inherited IRAs for non-spouse beneficiaries who have not yet started taking RMDs. 2020 does not get counted as a year toward the 5-year rule for taking RMDs.

Retirees who already took RMDs in 2020 may be able to roll back the RMD into their accounts within 60 days or take the distribution as a coronavirus distribution. Please talk to your financial advisor if this applies to you.

Up to $100,000 withdrawal from retirement plans

Individuals and families who have been affected by coronavirus, either personally or professionally, will be allowed to withdraw up to $100K penalty-free from their retirement accounts (IRAs and employer plans).

  • There is no 10% early withdrawal penalty

  • The distribution is still taxable (unless from a Roth account), but the income can be spread out over three years for tax payment purposes

  • The amount can be repaid over three years without the usual contribution limits for retirement accounts 

Expanded loan limits from employer retirement plans

  • The maximum loan amount from employer plans has increased from $50,000 to $100,000

  • Employees may now borrow against up to 100% of their vested balance (up from a maximum of 50%)

  • Individuals who had previously borrowed from their employer plans can delay loan payments for up to one year

Remember to consult with a trusted financial planner before taking action. The CARES Act can help you out of a tough situation, but there are still many risks involved when it comes to taking advantage of any of these programs.

Sefa MawuliComment